ICS 

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tate University 



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COMPANY 



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EMBLEMS AND EXERCISES 
IN ECONOMICS 

REVISED EDITION 



BY 

H. GORDON HAYES 

Professor of Economics, Ohio State University 




NEW YORK 

HENRY HOLT AND COMPANY 

1922 



** 



.i 



* 






Copyright, 1916, 1922, 

BY 
HENRY HOLT AND COMPANY 



PRINTED IN U. S. of A. 

PRESS OF THE LENT & GRAFF CO.. N. Y. 



»Ci.A68l478 

AUG 23 1922 



PREFACE TO THE FIRST EDITION 

O 

This book of problems and exercises, originally 
v~ prepared for the use of students in the University 
^ of Minnesota, has been thoroughly revised and en- 
s ^r> larged for the present edition. It is designed to 
^ serve teachers and students in the Principles of Eco- 
nomics by furnishing illustrative problems and ex- 
ercises in convenient form. It is believed that the 
use of such problems will tend to accomplish the 
following results : 

(1) Illustrate the principles of the science and the 
subject-matter of the text. 

(2) Form a basis for class discussions, and for 
discussions by students outside of class. 

(3) Promote close thinking on the part of the 
student. 

(4) Encourage students to read more critically. 

(5) Stimulate interest in the subject. 

The problem method succeeds best when certain 
problems are assigned for written exercises, the 
papers read and returned to the student, with errors 
indicated, to be corrected and returned to the in- 
structor. For large classes this plan can be best 
followed by having special assistants to read the 

iii 



iv PREFACE 

papers. But preparation of the papers by the 
student, even if some, or all of them, may not be 
given specific criticism, is eminently worth while, as 
is the study of problems without reducing the an- 
swers to writing. A few suggestions with regard to 
the method of attacking problems, together with a 
scheme for the preparing and marking of papers, are 
included at the end of the book. It is suggested that 
teachers use care in assigning problems, that those 
which are too difficult for the student or those for 
which help is not contained in the text or assigned 
reading shall be omitted. 

The outline of the book, and the order of arrange- 
ment of the problems follow, in general, Professor 
Seager's Principles of Economics, which it is intended 
to accompany. As the problems and exercises re- 
late to the general principles of economics rather than 
to the particular subject-matter of the text, and as 
many of them contain within themselves most of the 
data needed for their solution, the book should prove 
practically as well suited to accompany any other 
text-book. 

The author wishes to acknowledge a very special 
indebtedness to Professor F. M. Taylor, of the Uni- 
versity of Michigan, first, for the general idea of the 
problem method which is embodied in this book; 
secondly, for the training, while student and teacher 
under his direction, in his method of constructing 
problems and adapting them to effective use; and 
thirdly, for a large number of problems either copied 



PREFACE 

v 

Z^f. tr T hk PHaci P l " of Economics and 
from hw lists of examination questions, for which he 

dim; »> fo ; vai r e -££■ £3; 

asms. In addition, he wishes to express appreciation 
for p erm t a fw ob P ms K atio„ 

SbifsSrt. \r ew f rom the ° ut u ™ « *~^ 

published by the University of Chicago Press Such 
problems, together with those from Professor Taylor 
are indicated by the appropriate initial, without' 
parenthesis if copied, with parenthesis if adapted 

Minneapolis, I9is. * ^' 



PREFACE TO THE SECOND EDITION 

The list of problems published six years ago has 
been considerably altered for the present edition. 
While some of the problems of the first edition are 
included in this edition without alteration, for the 
most part substitutions have been made for the orig- 
inal problems or they have been rewritten. 



H. G. H. 



Columbus, Ohio, 
April, 1922. 



PROBLEMS AND EXERCISES IN 
ECONOMICS 

I. 

INTRODUCTION. 

1. a. Mention several wants which you have which 
are dependent upon economic goods for their satis- 
faction. 

b. Mention wants which you have which are in no 
way dependent upon economic goods for their satis- 
faction. 

2. Define economics. Amplify the definition show- 
ing what the science includes and what it excludes. 

3. a. Are the questions suggested by the follow- 
ing terms economic : prison reform, Sunday baseball, 
six-year presidential term, intercollegiate athletics, 
eight-hour day, submarine warfare? 

b. Do those which are not economic involve eco- 
nomic considerations? Explain. 

4. List five important questions of the day. Desig- 

1 



2 INTRODUCTION 

nate those which are essentially economic and those 
which involve economic matters. 

5. List five questions of local importance in your 
city or town. Which of these are economic? Which 
involve economic matters without being essentially 
economic ? 

6. Name some of the laws of your state that have 
economic consequences. Can you mention any im- 
portant state law that is without economic effect? 

7. Is the main purpose which you hope to accom- 
plish in life economic? If not, is it in any degree 
economic ? 

8. How is family life dependent upon economic 
conditions ? 

9. Do you believe that social prestige is largely 
dependent upon economic possession? If so, is the 
fact regrettable? Discuss. 

10. Suggest two subjects of interest to economics 
students to-day that were not considered fifty years 
ago. Account for their development. 

11. Give an historic illustration of the fact that 
economic strength is vital to the life of a people. 



II. 

RISE OP MODERN INDUSTRY IN 
ENGLAND 

12. a. State the chief characteristics of the man- 
orial system. 

b. What were the advantages of that system as 
compared with our present industrial system? The 
disadvantages? 

13. What was the main purpose of the gilds? 
When did the gild system flourish? Account for the 
displacement of the manorial system by the gild 
system and for the subsequent failure of the latter. 

14. "Statutes of Laborers — passed in 1351, and 
subsequent years — seem to have had little practical 
effect." — Seager, p. 7. Account for these laws and 
for their failure. 

15. a. What was the mercantile system? Give the 
approximate dates for the beginning and end of this 
system. 

b. Account for the rise of this system? For its 
decline? 

3 



4 RISE OF MODERN INDUSTRY 

c. Is our present economic system more or less 
mercantilistic now than it was fifty years ago? Ex- 
plain. 

d. Were the American colonists at all affected by 
the mercantile policy of England? Explain. 

16. a. When did the industrial revolution take 
place? 

fe. Discuss the effect of this revolution upon life 
and industry. 

17. a. What do the words laissez-faire mean? 
b. What is meant by a laissez-faire policy ? 

18. "The policy of laissez-faire was an inevitable 
product of the time in which it originated." 

a. Give the supporting argument. 

b. Does this help to account for the abandonment 
of the policy of mercantilism? 

19. Give reasons for preferring to have lived be- 
fore the advent of the factory system ; for preferring 
to live under the factory system. 

20. Did the factory system lead to a modification 
of the laissez-faire policy? Explain. 

21. Is the tendency to-day toward a greater or a 



RISE OF MODERN INDUSTRY 5 

lesser application of the laissez-faire policy? Cite 
evidence to support your answer. Account for this 
tendency. 



III. 

THE INDUSTRIAL EXPANSION OF THE 
UNITED STATES. 

22. "The industrial opportunities that prevailed 
in the United States during the last two centuries 
made the laissez-faire principle inevitable." Give 
supporting argument. 

23. "Very early the North and South began to 
quarrel about protection to manufacturing indus- 
tries." 

a. State explicitly just why there was a conflict 
of interest in regard to protection. 

b. Does this conflict of interest still exist? If so, 
has it at all abated? Cite evidence in support of 
your answers. 

24. State the chief economic advantage that has 
resulted from the development of our railroads; the 
political advantage ; the general social advantage. 

25. Account for the fact that in Nevada, Missis- 
sippi and Vermont the population decreased during 
the decade ending 1920, while for the country as a 
whole the population increased 14.9 per cent. 

6 



INDUSTRIAL EXPANSION OF U. S. 7 

26. Account for the fact that the increase in our 
population per decade was approximately one-third 
from 1790 to 1860; one-fourth from 1860 to 1890; 
one-fifth from 1890 to 1910; and one-seventh from 
1910 to 1920. 

27. Cite evidence to support "the growing con- 
viction that in protecting liberty and property the 
government of the United States has neglected the 
interests of equality." 

28. "From 1900 to 1915 the number of wage- 
earners in establishments producing iron and steel 
increased 25 per cent and the value of the products 
increased 56 per cent." What is the significance of 
this statement? Would the increase in the volume of 
manufactured goods as compared with the increase 
in the number of laborers in manufacturing estab- 
lishments be more vital than this comparison? Ex- 
plain. 

29. "In 1850 we produced 1 ton of cereals per 
person. In 1900, with a smaller proportion of our 
population engaged in agriculture, we produced l^/o 
tons of cereals per person." — Smith, Industrial and 
Commercial Geography, p. 556. How do you ac- 
count for this increase in product per person? 

30. "Relatively our exports of manufactured 
products are increasing at the expense of our ex- 



8 INDUSTRIAL EXPANSION OF U. S. 

ports of agricultural products." Account for this 
fact. Argue that we may expect a still greater rela- 
tive increase in the export of manufactured goods. 

31. "The per capita foreign trade of the Falk- 
land Island is about $600 per person, while that of 
the United States is less than $40 per capita." — 
Smith, Ibid., p. 683. Why is there such a marked 
difference in the foreign trade of these two communi- 
ties? Can you judge the relative economic well- 
being of the inhabitants of these communities from 
these facts? Explain. 

32. The Annalist, January 17, 1916, estimated 
our foreign trade for 1915 at $5,350,000,000, and 
our home trade for the same year at $507,000,000,- 
000. It was also estimated that "all of our foreign 
commerce since the Civil War made but one-fifth of 
the home trade in the year 1915." Why is the 
volume of our foreign trade so small relative to our 
domestic trade? 

33. "The citizens of the United States have in- 
vested less than one per cent of their wealth abroad 
while the citizens of England have made foreign in- 
vestments amounting to a much larger percentage of 
their wealth." Account for this difference. May 
our foreign investments be expected to increase? 
Explain. 



IV. 
ECONOMIC CONCEPTS. 

A. Economic Activity. 

34. Have you ever engaged in economic activity? 
If so, what motive, or motives, prompted you to 
do so? 

35. Make a list of the motives to business activity 
that perhaps characterize (a) a student canvasser; 
(6) a college graduate entering a profession; (c) a 
manufacturer; (d) a railroad magnate; (e) an 
actor; (/) an unskilled street laborer. 

36. What motives to business activity are most 
worthy; least worthy? 

37. Explain the meaning of the expression "busi- 
ness is business." Should "business" be "business"? 

B. Economic Goods and Their Value. 

38. An economic good is one that has value, that 
is, commands a price. An economic good is one in 



10 ECONOMIC CONCEPTS 

the use of which we economize. An economic good is 
one that has both utility and scarcity. 

a. Are these definitions in agreement or do they 
conflict ? 

b. Which of them is the more fundamental? Why? 

c. Construct similar definitions for a free good. 

39. When was the land in your neighborhood a 
free good? When did it become an economic good? 

40. "A thing may have value and not be useful: 
e.g., an old stone prized by a collector." Point out 
the error. — T 

41. "A horse is no wealth to us if we cannot ride, 
nor a picture if we cannot see, nor can any noble 
thing be wealth except to a noble person." — Ruskin, 
Munera Pulveris, p. 25. Contrast the meaning of 
the word "wealth" in this statement with the mean- 
ing given to it by economists. 

42. Are the following economic goods: sunshine, 
a good disposition, fresh air, water in Lake Superior, 
the skill of a surgeon, the services of a surgeon, 
whisky, old postage stamps? 

43. Account for the difference between the earn- 
ings (wages) of a school teacher and a celebrated 



ECONOMIC CONCEPTS n 

musician ; a coal miner and a mining engineer ; an 
agricultural laborer and a movie star. 

44. The pelt of a chinchilla — a piece of fur about 
the size of a man's hand — sells for $70. Account 
for this fact. 

C. Production and Consumption. 

45. Adam Smith referred to household servants 
as "unproductive laborers." Show that servants are 
productive. What do they produce? Give some 
justification for Adam Smith's terminology. 

46. "The only real producers are the miners, 
lumbermen, and farmers; for they are the only ones 
who add something to the total wealth." Show that 
there is no essential difference in the contribution of 
the farmer, the miller, the baker, the grocer, and the 
delivery man. — T. 

47. "Let us do away with all these non-producing 
parasitic middlemen." 

a. Name three or four classes of middlemen. 

b. Argue that competition tends to eliminate all 
middlemen who are not rendering productive services. 

48. Is the teacher a producer? What does he 
produce? Answer the same question in regard to a 



12 ECONOMIC CONCEPTS 

cook; a laborer in a chair factory; a chair manu- 
facturer. 

49. Are the majority of University students pro- 
ducers or parasites? Explain. 

50. If one is not a producer, in what two ways can 
he get economic goods by which to live? 

51. An automobile may be both a producer's good 
and a consumer's good. Illustrate. 

52. "There is not a real antithesis between pro- 
duction and consumption. Production goods are 
merely consumption goods a little less ripe." "Yes, 
but it is of the greatest importance to the individual 
and to society that the difference between these two 
classes of goods should be clearly recognized." Dis- 
cuss the validity of the second quotation. 

53. "The car company was not responsible for 
the accident, but I got $800 damages for my client. 
I kept $400." — A lawyer. Was this lawyer's busi- 
ness activity productive or predatory? Discuss. 

54. Mention several laws that prohibit predatory 
production. 

55. Suggest forms of predatory production, now 
allowed, that should be prohibited by law. 



ECONOMIC CONCEPTS 13 

D. Economic Law. 

56. "The wage of labor tends to approximate the 
standard of living." 

"Every man should be paid a living wage." 

"Employers shall not pay laborers less than $5.00 
per day." 

a. What kind of law, or principle, does each of 
these statements exemplify? 

6. What conflicts, if any, exist, or may exist, be- 
tween these laws? 

57. "A law, limiting the rate of interest to six per 
cent in western Canada, would be opposed to eco- 
nomic law and would thus be doomed to fail." Ex- 
plain what is meant. 

58. Formulate an economic principle that is ar- 
rived at by the deductive or a priori method; one 
that is arrived at by the inductive, or a posteriori 
method. Explain each. 



CONSUMPTION OF WEALTH. 

59. Illustrate the law of diminishing utility from 
your own experience. 

60. "Eat, drink, and be merry, for to-morrow we 
die." Is this statement more characteristic of primi- 
tive or of civilized people? Of educated or of 
ignorant people? It is more characteristic of cer- 
tain nationalities than it is of other nationalities? 
Discuss. 

61. Why does the clerk say to the hesitating cus- 
tomers, "We are selling lots of these now 5 '? Are 
our economic wants largely determined by the atti- 
tude of our fellows? Discuss. 

62. Let the following schedule represent the de- 
mand in a given market : 

Demand Price 

1,000 bushels of potatoes would be taken at 55 cents per bushel 
1,100 " " " " " " " 54 " " " 

1 200 " " " " " " " 53 " " " 

1 300 " " " " " " " 52 " " " 

1 400 " " " " " " " 51 " " " 

14 



CONSUMPTION OF WEALTH 15 

a. Draw a graph to show the facts indicated in 
this schedule. 

b. Alter the schedule to show a much greater de- 
gree of elasticity in the demand. Alter the graph 
to correspond to the new schedule. 

63. Formerly, an expert cabinet maker could be 
found in almost every locality. Why is this not true 
to-day? Discuss. 

64. Illustrate uneconomical consumption. 

65. Distinguish between economic necessaries and 
luxuries. 

66. Show that expenditure for luxuries cannot be 
justified on the ground that such expenditures 
"make work." 

67. Distinguish between saving and spending. 
What is the advisable division of income between sav- 
ing and spending? Discuss. 

68. The servant class in the Philippine Islands 
greatly resented the displacement of the Spanish by 
the Americans since the latter did not employ nearly 
so many servants. 

a. Was this a hardship to servants? 

b. Argue that the Filipino laborers as a whole did 
not lose by this economy of the Americans. 



16 CONSUMPTION OF WEALTH 

c. Show that this economy in servants may be 
expected to have benefited the whole number of Fili- 
pino laborers. 






VI. 

PRICE. 

69. a. Why do we have prices set on goods and 
services? Is this really necessary? 

b. Why do certain goods and services demand very 
high prices while other goods and services command 
very low prices, or no price at all? 

70. Should you expect that an increase of one cent 
per pound in the price of sugar would lead to any 
reduction in the amount of sugar that is used? On 
the basis of your answer, what is the relation be- 
tween the price of sugar and the marginal utility 
of sugar? Explain. 

71. Should you expect that certain buyers of 
Ford automobiles are marginal buyers, that is, per- 
sons who would not purchase Fords at any higher 
price? If as many Fords as are now being sold 
could be sold at a higher price, what is the relation 
between the price of Fords and the marginal utility 
of Fords to buyers? Discuss. 

72. Explain in terms of the text why a person will 
buy a seat at the theater for $1.10 when there are 

17 



18 PRICE 

more desirable seats which he might purchase for 
$1.50 or $2.00. Does the price set for the seats in 
each section tend to correspond closely to the utility 
of seats to some buyers of those seats ? To all buy- 
ers? Discuss. 

73. "The marginal utility of a given stock of 
goods is the highest price at which all of the units 
of that stock can be sold." Is this statement in 
agreement with your text ? Explain. 

74. "All the units of a good have the importance 
— take the value — of the least wanted unit." 

a. Why is this true ? Illustrate. 

b. Has this statement any relation to the mar- 
ginal utility theory of value? Explain. 

c. May the buyer with the least want, as meas- 
ured by price offer, have the keenest desire? 

75. Explain the so-called paradoxes of value. 
They are as follows : 

a. A more useful article, like bread, is less valu- 
able than a less useful article, like diamonds. 

b. A most useful article, like air, may have no 
value at all. 

c. A part is sometimes more valuable than the 
whole; for by destroying a part, the remainder is 
often worth more than the whole. 



PRICE 19 

76. Show that the prices paid for the various 
kinds of service involved in building a house are com- 
plementary to each other. Are cases involving the 
principle of complementary price determination of 
frequent, or of rare occurrence? Discuss. 

77. "Those who speak of diamonds having no use- 
value, and of food having infinite use-value, must be 
drawing their ideas, not from the life of men but 
from the life of cattle." — Smart, Theory of VaLue y 
p. 22. Explain. Why is the price of bread low and 
the price of diamonds high? 

78. "The production and sale of most goods is 
going on continuously." 

a. Is this true of articles of clothing, food, fuel, 
and furniture? Is it true of the equipment and raw 
materials of manufacture P Of dwelling houses ? Of 
land? 

b. Ii the market supply is made up of constantly 
changing units, produced and offered for sale by 
competitors, what relation will tend to exist between 
prict and cost? Why? 

c. Does the length of time that must elapse before 
this relation is brought about differ in the case of 
different goods? Does it differ greatly? Why or 
why not? Give several illustrations. 

d. What determines price in the case of the goods 



20 PRICE 

the supply of which cannot be increased? Explain 
and illustrate. 

79. The prices of automobiles fell for several 
years before the war, then increased, and since the 
spring of 1921 have gradually fallen. How do you 
account for these price changes? How much lower 
will these prices go? 

80. A shoe firm in Minneapolis posted the follow- 
ing "special sale" schedule on its walls: 

Ladies' Shoes Men's Shoes 

$5.00 values for $3.75 $5.00 values for $4.00 

$4.00 values for $3.00 $4.00 values for $3.20 

$3.00 values for $2.25 $3.00 values for $2.40 

Upon being asked the reason for the difference in the 
two price schedules, the manager said: "There is 
more difference between the wholesale and retail prices 
of ladies' shoes than of men's shoes." Account for 
the fact stated in the quotation. 

81. a. If wooden chairs can be produced at a cost 
of thirty cents per chair, including necessary profit, 
regardless of the quantity produced, what should 
you expect to be the price of such a chair? Why 
neither more nor less ? 

b. If the manufacturers should be taxed ten cents 
for each chair produced, what effect would this tend 
to have on the price of such chairs? — (T.) 



PRICE 21 

82. Name several articles that you should expect 
to be produced at a uniform cost per unit regardless 
of the amount produced. 

83. Name several articles the production of which 
you should expect to entail greater cost per unit as 
the amount produced over a given period of time is 
increased. Explain. 

84. Name several articles the production of which 
you should expect to entail less cost per unit as the 
amount produced over a given period of time is in- 
creased. Explain. 

S5. a. Construct three* supply and demand sched- 
ules, for, respectively, a good of which a varying 
number of units can be produced at a uniform cost 
per unit ; a good of which the cost per unit increases 
as the amount produced over a given period of time 
increases ; and a good of which the cost per unit de- 
creases as the volume of output increases. Use the 
following model : 

SUPPLY PRICE DEMAND 
units will be pro- per unit ; at which units 
duced for sale at price buyers would take"*' 



o. Draw graphs to show the facts indicated by 
each of these supply and demand schedules. 



22 PRICE 

c. In which of the schedules could the words "but 
no more" be added after the word "units" in the 
supply column? In which one could the words "but 
no less" be added after the word "units" in the sup- 
ply column? Discuss the point involved. 

86. Decreasing costs per unit of output as the 
volume of output is increased may be due either to 
economies effected, on account of an increased 
volume of output, in the various stages through 
which an article passes from raw material to fin- 
ished product, or to economies that come from in- 
dividual plants producing on a larger scale. Illus- 
trate each class of economies. 

87. Assume the following individual supply sched- 
ules for three producers of a certain good : 





Supply 




Price 


A 


B 


c 




700 


800 


500 


25 cents 


1000 


1000 


800 


20 " 


1500 


1200 


1000 


15 " 


1700 


1500 





10 " 


2000 







8 " 









5 " 



a. If buyers will take 2000 units at 20 cents, 4500 
at 15 cents, and 5000 at 10 cents, how many units 
will be produced and sold by A? By B? By C? 
What profit will A make? B? C? 

b. If a tax be levied upon excess profits how should 



PRICE 23 

you expect it to affect A? B? C? Would such a 
tax tend to change the selling price of this good? 
Explain. 

88. If a tax be levied upon each unit of a good 
that is produced under competition and at an in- 
creasing cost per unit as the volume of output 
increases, will the selling price be affected? Explain. 

89. "We may expect the price of meat to steadily 
increase." Why so? 

90. a. With a fixed supply of 300,000, what price 
will be set when the supply is controlled by compet- 
ing sellers if demand is as in (A) ; if as in (B) ? 



Price 




Demand 


$4.00 


(A) 175,000 


(B) 20,000 


3.00 


240,000 


100,000 


2.00 


260,000 


300,000 


1.00 


280,000 


700,000 


.50 


300,000 


1,000,000 



b. If the sellers combine, what price will be set 
with demand (A) ; with demand (B) ? 

c. Will combination prove most profitable under 
demand (A) or demand (B)? 

d. Formulate a general principle for monopoly 
price on the basis of the conclusion reached in c. 

e. If a fifty-cent tax be levied upon this good, what 
will be the price under monopoly in (A) ; in (B) ? 



24 PRICE 

/. Formulate a general principle relating to the 
shifting of a monopoly tax on the basis of the con- 
clusion reached in e, 

91. Change part a of the above problem to read — 
If any amount can be produced at a cost of fifty 
cents per unit — and answer above questions. 

92. Assume the following supply and demand 
schedule for a certain grade of oil : 



Supply Price Demand 

Mil. Gal. Cents Mil. Gal. 

60 7 100 

100 6 150 

150 5 200 

200 4 300 

300-400 3 400 



a. Under competition, what price will prevail? 
6. Under monopoly, what will be the price? 

c. What dilemma confronts the monopolist when 
he is controlling a decreasing cost good? Illustrate. 

d. What will be the effect upon price if a one-cent 
tax should be levied upon the amount produced 
under competition? Under monopoly? 

93. a. If a large part of the people who now make 
beef and pork a part of their diet should permanently 
discontinue the use of these foods, what effect would 
this change tend to have on the price of bone fer- 
tilizers? Explain fully. 



PRICE 25 

b. This change in the price of bone fertilizer, by 
affecting the price of the fertilizer which is a by- 
product of the fish industry, would affect the price 
of fish. In what way? 

94. Factories often operate during dull seasons 
and sell their products at prices at which they could 
not afford to sell over a long period of time. Explain 
fully why this is true. 

95. If the demand for mutton should increase per- 
manently what would tend to be the long time effect 
upon the price of cotton clothing? Develop the 
argument step by step. 

96. If a certain site yields $400 net rent per year, 
and is expected to yield this amount permanently, 
and the market influences have fixed the rate of 
capitalization for land income at five per cent, the 
price of the site will be $8,000. 

a. What is the computation process by which the 
price is thus fixed at $8,000? 

b. If a tax of $100 per year be imposed upon this 
site, what will the net income from the site then be? 
The price of the site? 

c. Will the landlord not raise his rent to $500 and 
force the tenant to pay the tax? Explain carefully. 

97. "The imposition of a new tax on a piece of 



26 PRICE 

land is equivalent to a partial confiscation of said 
land ; the removal of a long-standing tax is equivalent 
to a free gift to the owner of said land." Explain 
fully.— T. 

98. Certain reformers urge that taxes on buildings 
be decreased, or wholly removed, and taxes on land 
be correspondingly increased. What effect would 
this tend to have on : 

a. The rent of city lots? Explain. 

b. The selling price of city lots? Explain. 

c. The rent of city buildings? Explain. 

d. The selling price of city buildings? Explain. 



VII. 
PRODUCTION: LAND. 

A. What is Land ? 

99. a. What is land? 

b. Is the fertility in the soil part of the land? 

c. Should fences be classed as land? Tile drains? 
Trees in a young orchard? Trees in a wood lot? 

d. Does difficulty of making distinctions in par- 
ticular cases warrant the conclusion that such dis- 
tinctions are useless? Illustrate. — (T.) 

100. ''The supply of land is fixed." "The supply 
of land is elastic. Witness the great increase in the 
supply of land during the past century." Discuss 
the point at issue. 

101. What are the chief points of difference be- 
tween land and other goods? These differences fur- 
nish the basis for what tax proposal? 

B. Diminishing Returns. 

102. Why do not farmers confine their work to one 

27 



28 PRODUCTION: LAND 

TABLE OF COMBINING PROPORTIONS* 



I 


II 


III 


IV 


V 


VI 


VII 


VIII 


IX 










■u 






















3 


3 




ja 








"*« 


CIS 

8 


3 


& 


2 


a 

o 


< 


ffl 




u O [0 


Q 


3 

o 


3 

O 






^j 






© P.S 


•~ 3 


© 


© 


*._. 


«M 

o 
© 


a 

3 
o 

a 
< 


(3 
» 
o 

a 

< 


& 

o 


g-rt 

5&2« 


2° 


55 


ea. M 

few 
55 


5e 

II 


1 


20 


2 


2 


.. 




.1 


1 


1 


2 


20 


3 


6 


(1) 


4 


.3 


2 


4 


3 


20 


4 


16 


(2) 


10 


.8 


4 


10 


4 


20 


5 


35 


(4) 


19 


1.7 


7 


19 


5 


20 


6 


84 


(7) 


49 


4.2 


14 


49 


6 


20 


7 


126 


(14) 


42 


6.3 


18 


42 


7 


20 


8 


156 


(18) 


30 


7.8 


19.5 


30 


8 


20 


9 


179 


(19.5) 


23 


8.9 


19.8 


23 


9 


20 


10 


200 


(19.8) 


21 


10 


20 


21 


10 


20 


12 


236 


(40) 


36 


11.8 


19.7 


18 


11 


20 


14 


266 


(39) 


30 


13.3 


19 


15 


12 


20 


16 


290 


(38) 


24 


14.5 


18.1 


12 


13 


20 


18 


312 


(36) 


22 


15.6 


17.3 


11 


14 


20 


20 


330 


(34) 


18 


16.5 


16.5 


9 


15 


20 


22.2 


346 


(36) 


16 


17.3 


15.6 


7.2 


16 


20 


25 


362 


(43) 


16 


18.1 


14.5 


5.7 


17 


20 


28.5 


380 


(50) 


18 


19 


13.3 


5 


18 


20 


33.3 


393 


(63) 


13 


19.6 


11.8 


2.6 


19 


20 


40 


400 


(78) 


7 


20 


10 


1.1 


20 


20 


44.4 


398 


(44) 




19.9 


8.9 




21 


20 


50 


393 


(50) 


V 


19.6 


7.8 




22 


20 


57.1 


360 


(56) 


§ 


18 


6.3 


3 <u 


23 


20 


66.6 


280 


(60) 


ft 


14 


4.2 




24 


20 


80 


140 


(56) 


Q 

< 


7 


1.7 


25 
26 


20 
20 


100 
133.3 


80 
40 


(35) 
(26) 


4 
2 


.8 
.3 


5* 


27 


20 


200 


20 


(20) 


1 


.1 





* This table, together with a few of the questions based 
on it, is taken substantially, with some adaptations, from 
Taylor's Principles of Economics, ch. IX. 



PRODUCTION: LAND 



29 



acre of land? Why is it socially important to in- 
crease the available stock of land by improvements 
such as drainage and irrigation projects, and trans- 
portation facilities? 



-I i n-y 



Combinations 
<°\" \'*\'t \f 



1) 


r— 


1 1 

1 
1 
1 
1 


— 




--1 


/€ 








17 




to 







O 13436103/0/2- 14 /6 to 20 2*2 23 

Numbgr of Bj 



DIAGRAM OF ABOVE TABLE 

Continuous line — Rectangles measure actual increase in output 

at each combination (col. vi). 
Broken line — Rectangles measure increase in output if increase 

were proportional to increase in B's (col. v). 



103. The foregoing table shows the possible results 
from taking a given quantity of land (A) and com- 



30 PRODUCTION: LAND 

bining with it, using upon it, a gradually increasing 
number of days of labor (B). It may, of course, 
also be used to represent the application of varying 
units of coal to a furnace, of labor to a factory, or 
of any variable factor to a fixed factor. Note par- 
ticularly the second, third, and fourth columns from 
which the other columns are derived. 

a. If A's represent acres of land and B's days of 
labor, what product will result from applying four 
days of labor to the twenty acres of land? If the 
days of labor are increased one-fourth, from four 
to five, what increase in output will result? What 
would have been the increase in output if the increase 
had been proportionally equal to the increase in the 
days of labor, that is, if the output had increased 
one-fourth ? 

5. During which of the combinations does an in- 
crease in B's lead to an increase in output that ex- 
ceeds the increase in output that would have resulted 
if the increase in output had been proportionally 
equal to the increase in B's? 

c. During which of the combinations does an in- 
crease in B's lead to an increase in output that is less 
than the increase in output that would have resulted 
if the increase in output had been proportionally 
equal to the increase in B's? 

d. Column VIII, derived from columns III and 
IV, shows the average output per B in each combina- 
tion. During which of the combinations does the 



PRODUCTION: LAND 31 

average output per B increase if more B's are 
added ? 

e. During which of the combinations does the 
average output per B decrease if more B's are added? 

/. During which of the combinations does the out' 
put per A increase if more B's are added? 

g. The combinations suggested in b mark the 
stage of increasing returns. Using the term "chang- 
ing factor" instead of "B," state what is meant by 
saying that an industrial unit — a factory, a furnace, 
or a parcel of land — is in the state of increasing 
returns. 

h. The combinations suggested in c mark the stage 
of diminishing returns. What is meant by saying 
that land is in the stage of diminishing returns? 

i. "The stage of diminishing returns is not marked 
by a decrease in total return ; nor is the beginning of 
the stage of diminishing returns necessarily at the 
point where return per addition of changing factor 
becomes less." Show that this is true. 

j. If A's were free and B's were not, which com- 
bination would you use, 9 or 19? If B's were free 
and A's were not? If neither were free, within what 
combinations would you work? Just what will deter- 
mine the combination that one will use? 

k. Show that it will never be profitable to work in 
the stage of increasing returns if it may be avoided. 



32 PRODUCTION: LAND 

Z. Column IX shows the amount of output added 
by each additional B. If you were working at the 
16th combination, what could you afford to pay, in 
terms of output, for another B ? If all land is being 
farmed, say, in the 11th combination, what wage will 
be paid, in terms of output, assuming A's to be acres 
and B's laborers? Why neither more nor less? 

104. "As an industrial society, we should seek to 
work just at the beginning of the stage of diminish- 
ing returns ; but individual landowners will find it 
most profitable to work at the point of maximum 
output if wages are low enough to warrant it." 

a. Prove the first statement. 

b. As a society, how can we keep out of the later 
combinations ? 

c. Prove the second statement. 

d. How low must wages measured in output go to 
warrant the land-owner in using the 19th combina- 
tion in the above table? What rent will the landlord 
enjoy at this combination assuming that there are no 
costs other than labor cost? 

e. What wage will warrant the landlord's using 
the 11th combination but not the 12th? How much 
rent will be received at the 11th combination? 

/. What fractional part of the per capita product 
is wages at the 11th combination? What part is 



PRODUCTION: LAND 33 

rent? Answer similar questions for the 17th com- 
bination. 

105. "When one gets into the stage of decreasing 
returns he begins to lose money." Do you agree? 

106. "The law of diminishing returns presupposes 
no technical changes in method." Show the neces- 
sity for this limitation. 

107. "It is of course true that industry, especially 
agricultural industry, is subject to the law of dimin- 
ishing returns. Nevertheless, history shows very 
plainly that, as population has increased from a few 
millions to more than a billion, the supplying of the 
economic needs of society has become not more dif- 
ficult but much easier." Show that the two state- 
ments are not contradictory. 

108. "If it were not for the law of diminishing re- 
turns, every farmer could get rich simply by doubling 
frequently the outlay on his business." This state- 
ment would not be made by a person who knew ex- 
actly what is meant by the law of diminishing re- 
turns. Explain why. — (T.) 

109. "The formation of boys' corn clubs is an 
excellent thing. Some of the boys who belong to 
these clubs have, by devoting their time to a single 
acre, raised upon it as much as two hundred bushels 



34 PRODUCTION: LAND 

of corn. This sort of intensive cultivation shows 
the possibilities of American agriculture, and should 
be encouraged." 

a. Under what conditions is intensive agriculture 
economical? 

b. Is America in position to practice intensive 
agriculture? 

c\ What fundamental economic law is overlooked 
in the above question? — T. 



vin. 

PRODUCTION: LABOR, 

110. Define the economic term labor. 

111. What do you understand by the expression: 
"the cost of product expressed in human terms"? 

112. Is any labor pleasant? Is a large degree of 
it pleasant? What kind is most pleasant? Least 
pleasant? Is the pleasure to be derived from work 
conditioned upon the aptitude of the worker for his 
particular work? If the worker feels that his work 
is worth while, will he derive more pleasure from it 
than if he regards it as only a means of getting an 
income? 

113. "We must seek to make labor more efficient." 
"We must strive to make life as rich as possible. 
This may call for less rather than for more work, — 
for less, rather than more, high-speed efficiency." 

a. What possible difference in point of view is in- 
dicated by these statements? 

b. With which point of view are you most in sym- 
pathy? 

35 



36 PRODUCTION: LABOR 

c. May the two statements be reconciled? Ex- 
plain. 

114. "Specilization is necessary to a high degree 
of efficiency.'' 

a. Enumerate the many advantages of having each 
person engage at some one task. Are there any dis- 
advantages in such a procedure? Explain. 

o. Show that the degree to which one can devote 
himself to some one occupation depends upon the 
extent of the market, and that the degree to which 
one can devote himself to some one task within an 
industry depends upon the size of the plant. Does 
the size of the plant depend upon the extent of the 
market? 

c. May we expect more or less specialization in 
the future than we have now? Explain. 

115. "The steam engine theory of the efficiency of 
labor maintains, or perhaps implies rather than 
maintains, that the vigor of the laborer is in propor- 
tion to what he consumes." — Taussig, Principles of 
Economics, vol. 1, p. 92. 

a. Evaluate this theory. 

b. So far as it is true, what bearing has it on the 
minimum- wage proposal? Explain. 

116. In 1870 we had about 500 high schools in the 



PRODUCTION: LABOR 37 

United States; in 1880 nearly 1000; in 189C, 2400; 
and in 1921, 13,951. What should you expect to be 
the result of increased attendance at high school 
upon the economic welfare of the nation? Explain. 

117. Is there a close relationship between the hon- 
esty of a people and their economic welfare? Dis- 
cuss. 

118. Discuss the effect of thrift upon economic 
welfare; the effect of sobriety. 

119. How does an increase in economic welfare 
affect the volume of population? Explain. 

120. Does compulsory industrial insurance tend to 
affect the efficiency of labor? Explain. 

121. "A display of wealth by the employer's wife 
may reasonably be expected to decrease the efficiency 
of the workmen." 

a. Does this seem reasonable? Discuss. 

b. Is this statement at all indicative of a general 
condition that tends to impair the efficiency of 
'wage-workers"? Of other employees? 



IX. 
PRODUCTION: CAPITAL. 

122. Does labor ever produce without the aid of 
tools? Give illustrations. 

123. "The capitalistic, or tool, method is a round- 
about method." 

a. Suggest a direct method of catching fish. 

b. Suggest a roundabout method. 

c. Why is the roundabout method more efficient? 

124. "A tool involves two costs — labor cost and 
the cost of waiting." Illustrate. 

125. How is saving, or waiting, involved in the 
building of a house? In buying and using a house? 

126. "Interest is paid because capital is Scarce." 
Why is capital scarce? 

127. "His strength is his capital." Is capital 
here used in accordance with the economic definition 
of capital? 

38 



PRODUCTION: CAPITAL 39 

128. Give examples of fixed capital ; of circulating 
capital ; of specialized capital ; of free capital. 

129. There are two farm communities, one of 
which saves, postpones consumption, and devotes 
energy and products to the production of capital 
goods, while the other uses productive energy to 
provide mainly consumption goods. 

a. Which of these two will become the stronger? 

b. If a similar difference in economic policy pre- 
vails in the case of the inhabitants of two nations, 
which nation will be the more likely to survive the 
other? Explain. 

130. May a people devote too much labor and 
material to the production of capital equipment rela- 
tive to the amount they devote to the production of 
consumption goods? Discuss. 

131. Is the ratio between the amount of economic 
energy that we devote to producing production goods 
and the amount that we devote to the production of 
consumption goods satisfactory? Just how does it 
come about that these amounts are as they are? 

132. "The American people are very wasteful. 
They spend large sums each year on tobacco, liquor, 
candy, ice-cream, et cetera." 

a. Do we as a people have less capital than we 



40 PRODUCTION: CAPITAL 

would have if we didn't indulge so freely in these 
things ? Explain. 

o. If the use of these things represents a national 
loss, does the loss occur when the consumer buys them 
or at some other time? And of just what does the 
loss, if any, consist? 

133. Explain in what way the following con- 
tribute to the efficient performance of the capitalistic 
function : 

a. Postal savings banks. 

b. Commercial banks. 

c. Stocks and bonds of small denominations. 

d. An open stock market for the buying and sell- 
ing of securities. 



X. 

PRODUCTION: ENTERPRISE. 

134. Is the function of the enterpriser separate 
and distinct from that of the laborer, capitalist, and 
landlord? Discuss. 

135. A, being without available funds, borrows 
$1,000 from his uncle to start a grocery store. Who 
is the enterpriser? What is the economic function 
of the other? 

136. "In plants wherein the workingmen own the 
business, the place of the entrepreneur (enterpriser) 
is taken by a manager elected by the workmen." 
What is the fault in this statement? — T. 

137. What qualities does one need in order to suc- 
ceed as an enterpriser? Illustrate by reference to 
enterprisers that you know. 

138. Why do we say that every stockholder of a 
corporation is an element in the corporate enter- 
priser, while a bondholder, who also has capital in 
the concern, is not? — T. 

41 



42 PRODUCTION: ENTERPRISE 

139. If you were a grocery clerk receiving a sal- 
ary of $1,200 per year and an assured income oi 
$250 from $5,000 which you possess, should you con- 
sent to put your money ($5,000) into the business 
and become a partner if you felt reasonably certain 
of having only about $1,450 as your yearly share oi 
the returns from the store? On the basis of 3^oui 
answer formulate general principles in regard to the 
economic function and the economic reward of the 
enterpriser. Is it possible that other than economic 
motives might influence your decision in this case? 
Explain. 

140. Not many years ago Mr. W., after some 
months of painstaking negotiation, induced a num- 
ber of persons owning certain lands on the Copper 
Range to join with him in organizing a corporation 
to build a railroad, open mines, etc., — Mr. W. put- 
ting in some land of his own. For his fee, Mr. W. 
was to receive a certain number of shares in the 
stock of the company. Distinguish with explana- 
tions the economic roles played by Mr. W. in this 
matter. — T. 



XI. 

PRODUCTION: PRODUCTIVE EFFICIENCY. 

A. Co-operation — Specialization. 

141. "Specialization is now carried to a far 
greater degree than it was one hundred, or even fifty, 
years ago." 

a» What inventions have been most responsible 
for this increase in specialization? 

b. What advantages have accrued? What disad- 
vantages? Discuss. Do the advantages outweigh 
the disadvantages? Discuss. 

c. Do you expect that specialization will be car- 
ried still further? Discuss. 

142. "It is upon the seacoast, and along the banks 
of navigable rivers, that industry of every kind nat- 
urally begins to subdivide and improve itself." — 
Adam Smith, The Wealth of Nations, Bk. 1, ch. 3 
(1776). Account for this fact. 

143. Should you expect the aeroplane and the 
wireless telegraph and telephone to have any effect 
upon the extent of specialization? Discuss. 



44 PRODUCTIVE EFFICIENCY 

144. "The adjoining states of New South Wales 
and Victoria, containing more than 60 per cent, of 
the total population of the Commonwealth of Aus- 
tralia, constructed their railroads with gauges of 
four feet eight and one-half inches and five feet three 
inches respectively, while the three feet six inch gauge 
prevails, though it is not universal, in Queensland, 
South Australia and Western Australia. Travelers 
by rail between Brisbane, on the eastern coast of 
Queensland, and Perth, in western Australia, must 
change six times during the journey of 3,471 miles 
by reason of the breaks of gauge." — Commerce 
Monthly, Oct., 1921, p. 15. Discuss the effect of 
this condition upon specialization in Australia. 

145. Should you expect that there is greater ex- 
change of products between the various localities in 
Europe or in the United States? Why? Is a large 
volume of such trading advantageous as compared 
with a smaller volume? Discuss. 

146. "One should not depend upon others for that 
which is necessary to his very existence." Do you 
agree? Mention some worker who depends upon 
others for everything that he consumes. Is he wise 
or foolish in doing this ? 

147. "Only foreign trade can enrich a nation. 
Trade between sections of the country cannot add 
to national wealth." 



PRODUCTIVE EFFICIENCY 45 

a. Show that your state is increasing its wealth by 
trading with other sections of the country. 

b. Is there any real difference as to the economic 
gain from internal trade and that from foreign 
trade?— (T.) 

148. "The explanation of the fact that foreign 
commerce has played such a small part in the busi- 
ness of the American people (normally about one 
per cent) is no doubt that our own country has of- 
fered a market so big that it was unnecessary, in 
most cases, to seek an outlet for goods elsewhere." — 
The Annalist, Jan. 17, 1916, p. 85. This explana- 
tion is, at best, insufficient ; give something better. 

149. "It is a shame that we must depend upon for- 
eign co-operation for any good. We should produce 
what we want or go without." 

a. Do you consider it discreditable to us to rely 
upon the foreigner for certain products? Explain. 

b, Some are disposed to see in world-wide co- 
Dperation a force making for the spiritual unity of 
all peoples. Give reasons for this view. 

150. Suppose our foreign market showed a per- 
manent new shrinkage of 200 millions of dollars per 
annum, would this mean that our yearly income 
would be 200 millions smaller? State the loss in 
general terms. — (T.) 



46 PRODUCTIVE EFFICIENCY 

151. From the Congressional Record for May 17, 
1909: 

"Mr. Aldrich : Assuming that the prices fixed by 
the reports is the correct one, if it costs ten cents 
to produce a razor in Germany and twenty cents in 
the United States, it will require one hundred per 
cent duty to equalize the conditions in the two coun- 
tries. . . . And, so far as I am concerned, I shall 
have no hesitancy in voting for a duty which will 
equalize the conditions. ... I would vote for three 
hundred per cent as cheerfully as I would for fifty." 
To what sort of an economic system would such no- 
tions, if logically carried out, inevitably lead? — T. 

152. "The farmer should sell his produce direct to 
the consumer and thus eliminate the parasitic mid- 
dleman." 

a. Point out the advantages to the farmer of 
selling to the middleman. 

b. If farmers gain by selling to middlemen, are 
the middlemen parasitic? 

B. Large Scale Production. 

153. Make a detailed list of the economies that 
would result from a combination of three grocery 
stores into one store. 

154. If you were to manufacture men's collars, 



PRODUCTIVE EFFICIENCY 47 

what advantages should you expect to derive from 
large scale, rather than small scale, production? 

155. "Particular cases of extensive advertising 
prove to be of no cost to anyone, due to the eco- 
nomies of large scale production." Develop an 
argument, using illustrations, to support this state- 
ment. 

156. Are principles of large scale production ap- 
plicable to portrait painting? To photography? 
To tailoring? To the making of kitchen knives? 

157. "It has been learned by the experience of 
business men that when the individual plant passes 
beyond a certain size, it ceases to gain in efficiency." 
Durand, The Trust Problem, p. 69. Why should 
you expect this to be true? 

158. List the disadvantages of large scale pro- 
duction from the standpoint of the consumer; from 
the standpoint of the workers ; from the standpoint 
of society generally. 

C. Combination of Industrial Factors. 

159. "The efficient business man pays close atten- 
tion to overhead expenses." Explain the meaning 
of this statement. 



48 PRODUCTIVE EFFICIENCY 

160. "We can pay only $1.20 for an eight-hour 
day, but we will pay thirty cents additional for a 
nine-hour day." Illustrate concretely how a manu- 
facturer is able to pay twice as much per hour for 
the ninth hour as for the eight hours. 

161. The principle involved in the above problem 
can be used to explain the use of rebates and other 
forms of discrimination by the railroads in an effort 
to increase traffic. Explain. 

162. From data in the table in section VII, ar- 
range a table for combinations 9-14, including col- 
umns I-IV as in the table and on the basis of a cost 
of $2 per A and $5 per B, construct columns as 
follows : 

V, average cost per unit of output; VI, cost per 
unit of added output; VII, total receipts if sold at 
fifty cents ; VIII, added receipts if sold at fifty cents ; 
IX, profit; X, total receipts if sold at $.4135; XI, 
added receipts if sold at $.4135. From data in this 
constructed table, answer the following questions: 

a. Which combination gives the least cost per 
unit? 

&• For the combinations given, the plant is in the 
state of dfminrshhfg returns; from 9 to 11 the costs 
Per unit ™, beyond 11 they ™; Make 
proper erasure. 



PRODUCTIVE EFFICIENCY 49 

c. If the product were selling at fifty cents per 
unit, which combination would you use? What 
would be your average cost? If A's can be increased, 
will it be more profitble to increase A's with B's so 
as to maintain combinations 11, or to increase B's 
alone? 

d. With the costs for A and B as given, what 
price will come to prevail under free competition? 

e. Show that the per cent of profit received is no 
indication as to whether the plant is in the stage of 
diminishing returns or in some other stage. 

163. Which is relatively the more expensive, the 
coal or the furnace used in heating a house ? Should 
one plan to buy a furnace that will normally be 
worked in a combination near the beginning of 
diminishing returns or near the point of maximum 
returns? Why is the word normally used? 

164. "When I build my house I shall put in two 
furnaces, a large one for cold weather, and a small 
one for mild weather." 

a. Argue that this might be a wise plan if one lived 
where the winters are long. 

b. Can you think of any condition in industry that 
is analogous to this case? 

165. Are industrial plants likely to be in the stage 



50 PRODUCTIVE EFFICIENCY 

of diminishing returns, or increasing returns, during 
boom times? During periods of depression? — (T.) 

166. Show that the problem of the combination of 
factors is involved in determining the height of office 
buildings. — (C.) 



XII. 
PRODUCTION: FORMS OF ORGANIZATION. 

167. If you were planning (1) to write a book, 
(2) to practice law, (3) to open a bookstore, or, (4) 
to manufacture threshing machines, what advan- 
tages, or disadvantages, would come (a) from form- 
ing a partnership; (6) from organizing a corpora- 
tion? 

168. "Since all the profits of a corporation go to 
the stockholders, it is unfair that debts beyond cor- 
porate value should fall upon creditors; I object, 
therefore, to the limited liability of the corpora- 
tion." Should you favor legislation making stock- 
holders liable for all debts contracted by the cor- 
poration? Discuss fully. 

169. "I weigh my words, when I say that in my 
judgment the limited liability corporation is the 
greatest single discovery of modern times, whether 
you judge it by its social, by its ethical, by its indus- 
trial, or in the long run, — after we Understand it and 
know how to use it, — by its political effects." — 
President Butler, quoted in Proceedings of The 

51 



52 FORMS OF ORGANIZATION 

National Tax Association, 1912, p. 187. Suggest 
reasons for this view of the corporation. 

170. Are the economic advantages of corporate 
organization enhanced by the fact that shares of 
stock are issued in small denominations, usually $100, 
and always have a ready market on the stock ex- 
change? Explain. 

171. "The inflation of the capitalization of a cor- 
poration is called stock watering." 

a. Why should stockholders wish to increase the 
nominal capital of the corporation? 

b. How may the public suffer from stock water- 
ing in the case of public utility corporations? Il- 
lustrate. 

172. "This corporation, engaged in the manufac- 
ture of brick, is greatly over-capitalized; conse- 
quently the consumers have to pay an unfair price 
for bricks." Is this conclusion sound? Discuss. 

173. "4,508 manufacturing corporations with in- 
vested capital of $100,000 and over reported to the 
United States Government in 1917 capital stock of 
$1,619,045,004 and invested capital, as that term is 
defined under the 1917 excess profits tax law, of 
$2,947,535,517."— Friday, Profits, Wages, and 



FORMS OF ORGANIZATION 53 

Prices, p. 63. What is the per cent of invested capi- 
tal to capital stock? What conclusion may we draw 
from these figures relative to stock watering in 
manufacturing corporations ? 

174. "To sell out (dispose of stock) when the 
affairs of a corporation are going badly, to buy in 
when they are going well, is the height of business 
acumen." — Taussig, Principles of Economics, vol. 1, 
p. 86. ; 

a. Is this condition at all undesirable? Explain. 

b. What general advantage results from this pro- 
cedure? 

c. What institution makes such procedure pos- 
sible? 

175. "One result of the corporate organization of 
industry is that many persons who loan capital have 
no control over the use made of it, or over the treat- 
ment given to the employees whose employment it 
makes possible." 

a. Explain why this is true. 

b. Discuss the advantages and the disadvantages 
of the situation. 

c. Can you suggest any remedies tending to cor- 
rect the disadvantages ? Would the sale of the stock 
of "bad" corporations by righteous owners be a cor- 
rective measure? Discuss fully. 



54, FORMS OF ORGANIZATION 

176. Why have industrial conditions since, rather 
thad before, the industrial revolution, stimulated the 
growth gf corporations? 



XIII. 
SOME SPECIAL CASES OF PRODUCTION. 
A. Speculation. 

(1) Produce Speculation. 

177. Is the risk of price fluctuation greater or less 
than it was 100 years ago? 

178. "Every man who buys a good to sell again is 
a speculator." Is this true? 

179. Is it economical to society to have a separate 
speculating class? 

180. "Speculation is the taking of necessary risks ; 
gambling is the taking of unnecessary risks." Illus- 
trate the truth of both parts of this statement. — T. 

181. A miller buys 10,000 bushels of wheat in Oc- 
tober at $1 per bushel and expects to sell the flour in 
December at the price then prevailing. If the price 
of wheat should rise and cause a rise in the price 
of flour, he will gain from his purchase of wheat, but 
if the price should fall he will lose. Such gain or 

55 



56 SPECIAL CASES OF PRODUCTION 

loss has no relation to his ability as a miller. He 
does not wish to bear the risk of such a loss. 

a. Who will bear this risk for him? How will this 
Other person be recompensed for doing this? By 
just what process will this second person assume the 
risk? Is it socially worth while to have a special 
class of persons who will assume these risks? 

6. If October wheat is $1 and the cost of carrying 
wheat until December is three cents per bushel, then 
December wheat will be worth $1.03 in October. If 
the miller sells short for December at the time he 
buys the wheat he is to grind, his account will stand 
as follows: 

Wheat for Miixikg 

10,000 bushels at $1 $10,000 

Storage, insurance, etc., two months, 3c 300 

Total cost $10,300 

Future, or Short Sale 
10,000 bushels to be delivered in December at 
$1.03 $10,300 

Total selling price of short sale $10,300 

If the price is $1 in December, how much will the 
miller lose on his flour due to the fact that the price 
of wheat is $1 rather than $1.03 as expected? But 
as he can buy wheat at $1, and deliver 10,000 bushels 
at $l f 03, he will make what sum on his short sale? 
Do his loss and gain balance? If so, how does he 
make any money? 



SPECIAL CASES OF PRODUCTION 57 

c. Assume price to have risen to $1.08 in Decem- 
ber and compute the miller's gain or loss on each 
transaction ? 

d. Why use the term "selling short"? — (T.) 

182. Argue that wheat speculation, as illustrated 
here, tends to lower the price of flour. 

183. Consult the daily paper and find the price of 
wheat to-day. What is the price of futures ? 

184. A manufacturer of cotton goods buys raw 
material in February. He expects to have the goods 
ready for market in May* How can he escape the 
risk of losing through a decrease in the price of cot- 
ton if he is unable to sell the goods in advance? Il- 
lustrate. 

185. If the ripening wheat crop should be seri- 
ously damaged suddenly, what would wheat specula- 
tors do? Would this activity be to the advantage or 
disadvantage of consumers of flour? Discuss. 

186. Taylor says that the chief functions of 
speculation in produce are: (1) to establish proper 
price; (2) to secure the bearing of the risk burden ol 
ownership in the easiest and cheapest way? Show 
how each of these ends is secured. 

(2) Speculative Trading m Stocks and Bonds. 



58 SPECIAL CASES OF PRODUCTION 

187. "The buying and selling of stocks and bonds 
encourages the investment of capital." Show that 
this is true. 

188. "The function of enterpriser can be effi- 
ciently performed only in case capital is available." 

a. Support this statement. 

5. Does the stock market help to make capital 
available? Explain. 

189. "The efficiency of the corporation as a fac- 
tor in production is greatly enhanced by the exist- 
ence of the stock market." By a hypothetical case, 
show that this statement is true. 

190. "We have borrowed an enormous sum of 
capital from abroad during our history." 

a. In what form have we imported this capital? 

6. How have the loans been negotiated? 

c. How have the debts been paid when payment 
was desired? 

191. Note the prices of the various securities 
listed in the daily papers. Why are there such dif- 
ferences in the prices of securities? 

192. "The New York stock exchange is at once 
the greatest institution in the world for facilitating 
investment and the greatest of gambling hells." — 



SPECIAL CASES OF PRODUCTION 59 

Taussig, Principles of Economics, vol. 1, p. 165. 
Show how the stock market performs this double role. 

B. Insurance. 

193. "Insurance eliminates risks." Is this true? 
Do fire insurance companies prevent fire? Do they 
prevent fire losses to individuals? Just what is their 
function ? 

194. "No, that building that just burned was not 
insured. I have not insured a building for seven 
years." — A successful farmer. Why doesn't he in- 
sure his buildings? Why do you suppose this man 
stopped insuring them at the time he did rather than 
earlier? 



XIV. 
PRODUCTION AND DISTRIBUTION. 

195. What does the word distribution mean as it 
is commonly used by business men? What does the 
economist mean by distribution? 

196. Through what doors are the products of our 
industry distributed, that is, what are the shares in 
distribution? Are the two processes, production and 
distribution, separate and distinct? Do not forget 
to explain. 

197. "Distribution is determined by the prices 
that are set upon the production factors." Explain. 

198. Is the subject of distribution of wealth more 
important to-day than it was at the time of the 
industrial revolution? If so, explain why. 

199. "One's wages-of-management is the amount 
that he could command as salary if he should choose 
to work for another rather than for himself." Is 
this sound? If so, are wages-of-management merely 
wages ? 

60 



PRODUCTION AND DISTRIBUTION 61 

200. "Opposed to the fact that fully nine-tenths 
of the products of current industry are not in con- 
sumable form is the equally certain fact that prac- 
tically the entire money income is spent for goods 
that are ready for consumption." — Seager, p. 180. 

a. What part of the productive effort that is spent 
in producing bread is spent upon the day that the 
bread is purchased for consumption? About what is 
the remotest date at which any of that effort was 
performed ? 

b. Answer similar questions in regard to coffee. 

c. Suggest an article where production is com- 
pleted in one day. 

d. If producers are paid largely in products the 
production of which has extended over a long period 
of time, do they get an equivalent of what they pro- 
duce inasmuch as production methods are constantly 
becoming more efficient? 

201. What do you understand by the expression 
the yearly income of the nation? The yearly net in- 
come of the nation? The annual national dividend? 
The annual national product? 



XV. 

DISTRIBUTION: RENT. 

A. The Nature and Origin of Land Rent. 

202. "Rent is the price paid for the use of land." 

a. What determines the rent that tenants pay for 
agricultural land? 

b. What determines the rent that is paid for city 
lots for business purposes? For residence sites? 

203. "Rent on any parcel of land is due to the fact 
that the market value of the product from that land 
rises above the cost of producing it, including neces- 
sary profit." 

a. Argue in support of this statement. 

b. Account for the fact that the market value of 
the product from a parcel of land may exceed the 
cost of production. 

204. "Price rose from thirty cents to forty cents 
per bushel, thus making it possible to farm poorer 
land, and, as a result of farming the poorer land, 
rent emerged on the best, or thirty-cent land." 
Criticise this statement. — (T.) 

62 



DISTRIBUTION: RENT 63 

205. "Rent is measured by the method of differ- 
ences, starting from the no-rent land margin and 
proceeding from grade to grade until the best and 
most favorably situated lot for the purpose that is 
economically most important is reached." — Seager, 
p. 241. 

a. Is it necessary to have no-rent land in order 
to have rent ? 

b. "This method of measuring rent is based on the 
assumption that land varies in productivity by in- 
finitesmal differences." Do you agree? Discuss. 

206. Distinguish between the intensive margin of 
cultivation and the extensive margin. Is there any 
land at the extensive margin in your state? Are 
there any products produced at the intensive margin 
in your state? Show that the price of potatoes 
tends to equal the cost of producing potatoes at 
the extensive margin of cultivation ; at the intensive 
margin. 

207. What influence do you expect that the re- 
frigerator car has had upon agricultural rent? The 
automobile? The telephone? 

208. If a subway should be constructed in a large 
city, what effect should you expect this to have upon 
the rent of land (1) in the downtown business dis- 



64 DISTRIBUTION: RENT 

trict, (2) in the residence district adjacent to the 
downtown business district, (3) in the outlying busi- 
ness district, (4) in the outlying residence district? 

209. "Walk upstairs and save five dollars on a 
suit of clothes. Our prices are less because our rent 
is less." Are their prices less because their rent is 
less? Is their rent less because their prices must be 
less than their ground floor competitors? Discuss. 

210. "Trade with us. Since we own our own store, 
we do not have to pay any rent, consequently our 
prices are lower." Make a similar statement in 
which a merchant would claim that his prices were 
low because he did not have to pay wages. Discuss 
the point at issue. 

B. The Relation of Rent and the Selling 
Price of Land. 

211. a. If a tract of land is bearing $400 rent and 
if it is expected that this figure will not change, and 
men are satisfied with five per cent income from land, 
what price will be set on this tract? What price if 
the rate of capitalization is three per cent? 

b. If this land should be expected to bear $500 
rent five years from now, and $600 ten years from 
now, would this affect the market price of the land? 
In terms of interest earnings, what effect would such 



DISTRIBUTION: RENT 65 

an expected increase in rent have upon the income 
from land? 



212. If a house and lot rents for $4*0 per month 
how could you determine the approximate market 
value of the lot? 

213. A certain piece of land yields twenty bushels 
of wheat per acre, the expenditure per acre being 
$10. With land on the margin of cultivation yield- 
ing ten bushels for the same expenditure, and with 
the rate of capitalization five per cent, what value 
would an acre of the twenty-bushel land tend to have 
when there was a tax on it equal to eighty per cent 
of the rent? Put down in your answer each step in 
the solution, and explain fully. — T. 

214. "The price of land has risen recently, so the 
landowners are demanding more rent." Is this rea- 
sonable? Explain. 

C. The Social Aspect of Rent. 

215. "As, with increasing population, there falls 
out, per capita, a smaller product in society to be 
divided, there goes to the landlords a larger and 
larger proportion of this more and more tragically 
inadequate total. The landlords gain by the general 
ill-fortune. Those classes disinherited of land are 
doomed to a double and compounded pressure of ad- 



66 DISTRIBUTION: RENT 

versity. The land famine smites them with both 
edges of its sword." — Davenport, Economics of En- 
terprise, p. 180. Illustrate this contention by refer- 
ring to the table of combining proportions in section 
VII. What are the two edges of the sword? 

216. Argue that under government ownership of 
land justice would require that rent be charged for 
residence sites so soon as two persons came to desire 
the same site. Is it probable that there could be a 
community in which two or more persons would not 
desire the same site? 



217. Is it wise to have private ownership of land? 
If so, can we safely take all the rent from the owners 
by imposing taxes equal to the rent? Can we safely 
take part of it? Discuss fully. 

218. Is there a particular reason why the land 
rent due to public improvement should be taxed into 
the public treasury? Explain. 

219. If the state owned all the land, could indi- 
viduals secure land more easily than they can to- 
day? Explain. 

220. Suppose that I own a farm in Ohio and rent 
it for cash rent of $500 per year. Do I earn the 






DISTRIBUTION: RENT 67 

$500? Does the tenant earn it? Who does earn it? 
Why?— P. 

221. Do you expect that total land rent will in- 
crease or decrease in the United States? Explain. 
May the land rent in certain sections be confidently 
expected to increase? Discuss. 



XVI. 
DISTRIBUTION: WAGES. 
A« [The Determination of Wages. 

222. "An industrial society in which certain per- 
sons are paid $500 per day while thousands of their 
brothers are paid only $2 per day is indefensible." 
Do you agree? Discuss fully. 

223. Assume a community in which the raising of 
corn is the main industry. 

a. What will determine the wages in corn that 
rival farmers will pay? Will this increase or de- 
crease as population increases? Will all of the farm- 
ers, or only certain farmers, be forced to pay all 
that they could pay? Explain. See table in sec- 
tion VII. 

o. How would wages be affected : ( 1 ) if the meth- 
ods of raising corn should be improved; (2) if im- 
proved transportation facilities should make more 
corn land available; (3) if gold should be discovered 
in adjacent territory? 

224. Why are wages higher in Montana than in 
Georgia? 

68 



DISTRIBUTION: WAGES 69 

225. "Women are paid less than men for similar 
work." Are they? If so, why? 

226. "The economists teach that free bargaining 
between capital and labor will give the laborer just 
or reasonable wages." Show that the economists do 
not teach that free bargaining, but rather that keen 
competition, will give just wages. — (T.) 

227. a. Under what conditions will an increase in 
the wage rate by legislation reduce the number of 
persons that are employed? 

b. "If employers do not bid against each other 
keenly for labor, the wages that prevail might be 
raised by legislation without causing unemployment." 
Is this sound? Do employers bid against each other 
as keenly for labor as for raw materials? Discuss. 

c. "If low paid workers are given an increase in 
wages, they may be worth more, — they themselves 
may become more efficient, and, also, the employer 
may become more efficient." Is this reasonable? 
Discuss. 

228. "The employer's interest is in money wages ; 
the laborer's interest is in real wages." Discuss. 

229. In defending the organization of trusts, and 
the consequent restraint of competition, an argu- 
ment like this is sometimes used: "Competition in 
the sale of goods so reduces prices that it is impos- 



70 DISTRIBUTION: WAGES 

sible to pay fair wages to the workman." Defend 
the contention that the competition which tends to 
reduce the prices also tends to raise wages. — T. 

230. Just how does it come about that, all other 
things being equal, the occupation that is agreeable 
pays a lower wage than the occupation that is dis- 
agreeable? Illustrate. 

231. "If you are an American wage- worker using 
modern machinery in an up-to-date plant, you pro- 
duce each day goods that sell at retail for at least 
$10. But you don't get the $10; you get, on an 
average, about $2; somebody else gets the $8." — 
Chas. H. Kerr, in a socialist pamphlet. Show that, 
if the wage- worker in question did get the whole $10, 
he would be cheating some other wage-worker as well 
as some non-wage workers. — T. 

232. "Wages are apt to be fixed much closer to 
the minimum which the laborer will take than the 
maximum which the employer will pay; for the lat- 
ter has much more skill and strength in bargaining." 
Construct a demand and supply schedule according 
to which employers will pay $5 per day for 100,000 
days' labor and employees will take $1.50 per day 
for that amount of labor. Show that it is possible 
that the wage may be set at $5. Is it probable that 
it will be nearer $5 or $1.50?— (T.) 



DISTRIBUTION: WAGES 71 

233. "The capitalists own the tools of production 
and can thus force the workman to take any wage, 
since labor cannot work without tools." 

#. : Do you agree? Discuss. 

6, Turn the quotation about so that the laborers 
will appear able to dictate the wage. — (T.) 

234. Why do most surgeons receive incomes that 
are greatly in excess of the incomes that are received 
by most physicians? 

235. "Men love to excel at difficult and important 
tasks. The instinct of workmanship and social pres- 
tige will hold them to the socially important work. 
Differences in financial remuneration are not neces- 
sary." Do you agree? If not, do you believe that 
there is any merit in this contention? Discuss fully. 

236. If you were to go into a community as a 
dentist, what would determine the prices that you 
would set upon your services? Would you be at all 
influenced by the fact that there were, or were not, 
other dentists in this community? Explain. 

237. "Competition is not effective in determining 
physician's fees, else the fees would be lowered, as 
competition is very keen." 

a. Account for the fact, assuming it to be true, 
that physicians' fees are not lowered by competition. 



72 DISTRIBUTION: WAGES 

b. Argue that large fees result in competition 
which reduces income, although it does not reduce 
particular fees. 

c. May large fees result in our having more 
physicians than we really need? Discuss. 

238. a. Does special educational training for a 
*ew increase the wages of these few? Why? 

b. Would equivalent education for all lower the 
wages of the "few"? 

c. Would such education for all increase general 
wages over what they would otherwise be? Why? 

d. Suggest a program looking toward the equali- 
zation of wages during the next 100 years. 

B. Wages and the Standard of Living. 

239. "There is a vital connection between the 
population question and the wages question." Dis- 
cuss. 

240. "No remedies for low wages have the smallest 
chance of being efficacious, which do not operate on 
and through the minds and habits of the people." — 
Mill. Argue for the truth of this statement. (It 
probably needs qualification ; but leave that for some 
other occasion.) — T. 

241. "The standard of living keeps wages up." 



DISTRIBUTION: WAGES 73 

"How so? Men must work for what they can get. 
Their standard of living will not enable employers 
to pay them more than the competitive wage." Does 
the point made in the second quotation disprove the 
position taken in the first? Explain. 

242. Are the wages of carpenters determined by 
their standard of living, or by the standard of living 
of their social group, or is their standard of living 
determined by their wages? Are not their wages 
determined by their productivity? Discuss fully. 

243. Is the "long time" concept vital in the con- 
sideration of the wage and standard of living prob- 
lem? Explain. 

C. Employment. 

244. According to a principle formulated by J. B. 
Say (Say's Law), the goods and services which are 
offered on the market constitute the demand for 
other goods and services. Show that the farmer's 
demand is conditioned by his supply; the manufac- 
turer's ; the musician's. 

245. "The snowfall was a great blessing to labor, 
for the city had to employ a large number of men to 
remove the snow from the streets." — A news item. 

a. Did this benefit certain laborers? 

b. Was it a benefit to laborers generally? 



74 DISTRIBUTION: WAGES 

246. "A store burned in our town and relieved the 
unemployment situation. It was a blessing to the 
laboring man." Illustrate concretely how certain 
laborers may be expected to have lost because of this 
fire. 

247. Discuss the short time effect upon employ- 
ment of the introduction of machinery that per- 
manently reduces by one-half the number of laborers 
needed in a particular line of work; the long time 
effect. 

248. "The college professor's wife who makes her 
own dress is unfair to those persons who must work 
for a living." Criticise. 

249. Minnesota labor unions petitioned the 1915 
legislature to defeat the county option liquor bill on 
the ground that the closing of the saloons and brew- 
eries would throw a great number of men out of work. 
Discuss the effect that national prohibition has had 
on employment. 

250. "Prison labor should be devoted to road 
building and thus not brought into competition with 
free and honest labor." Argue that it is to the ad- 
vantage of free labor to have prison labor produce 
as many goods as possible. — (T.) 



XVII. 
DISTRIBUTION: INTEREST 

A. The Nature of Interest. 

251. "Saving, or abstinence, is necessary to the 
existence of capital." Is this true? Could Robinson 
Crusoe have a fish-net without saving or abstinence? 
-(T.) 

252. The interest problem is : Why does capital 
yield an excess over replacement? That is, why does 
a tool give a product that is more valuable than the 
tool? The problem is answered by answering the 
question: Why do we not have so many tools that 
the value of the product declines to the value of the 
tool? 

a. Answer the last question. 

b. Show that this answer is an answer to the 
second question, and that the second is only a re- 
statement of the first. 

253. "The interest that capitalists receive is in no 
sense subtracted from the reward that goes to labor." 
Explain and defend this statement. 

75 



76 DISTRIBUTION: INTEREST 

254. a. Assume a communistic society and show 
that justice would require that the persons request- 
ing wine at the common store house in exchange for 
certain claim checks should be given a smaller quan- 
tity than is given in grape juice to persons present- 
ing similar claim checks. 

b. Show that in a socialistic society certain prod- 
ucts will require equipment that will involve more 
waiting than is required for other products. Show 
that the persons using the products involving wait- 
ing should, in justice, pay more than the labor costs 
involved.— (T.) 

255. Interest is either explicit or implicit. Ex- 
plicit interest is manifested in loan contracts. Im- 
plicit interest is manifested in the prices paid for 
goods or for the use of goods. For example : 

a, A produced goods sells for a price higher than 
its costs in other goods and labor. 

o. A produced good hires, or rents, for a daily or 
monthly price that is more than sufficient to return 
during its life time, the market value of the good. 

c. A non-producible income-bearing good sells for 
a price lower than the sum of the expected incomes. 

Illustrate each of these three cases of implicit in- 
terest.— (T.) 

256. a. Under what conditions would you pay in- 
terest for consumption purposes? For production 
purposes? 



DISTRIBUTION: INTEREST. 77 

b. Why is not the amount available for borrowers 
so abundant that they need not pay for its use? 

c. What do lenders sacrifice in loaning? Under 
what conditions would you loan gratuitously? At 
the normal rate of interest? Only at an excessive 
rate, say twenty -five per cent? 

B. The Rate of Interest. 

257. How much more efficient are the present 
highly capitalistic methods of grinding flour in Min- 
neapolis than were the Indian methods that used to 
prevail in that locality? Estimate roughly the in- 
terest rate that we could afford to pay for the use 
of milling machinery rather than go without it? 
What is paid? How do you account for this dif- 
ference? 

258. What is meant by saying that the rate of 
interest is just sufficient to induce the marginal 
saver to save? If this is true, then what would tend 
to be the effect upon the volume of saving if the rate 
of interest should rise, due to an increase in the 
demand for capital? If the rate of interest should 
fall, due to a falling off in the demand for capital? 
Is it necessary for the analysis involved in the second 
and third of these questions to assume that all other 
conditions remain as before, for example, that the 
amount of income that people receive remains the 
same, and that the prospects for a continuance of 



78 DISTRIBUTION: INTEREST 

these incomes does not change? As a matter of fact, 
are these other conditions the same under varying 
conditions of demand for capital? If not, is it 
necessary to prove the relation between the rate of 
interest and the amount of saving by reasoning de- 
ductively rather than inductively? Discuss fully. 

259. "It is foolish to insist that interest must be 
paid because of the sacrifice of saving when many 
rich men cannot help saving. It would be, not only 
much more burdensome, but impossible for them to 
consume their incomes." Discuss this statement. 
-(T.) 

260. "The pure interest rate tends to be the same 
ji all lines of industry." 

a. What is meant by the "pure interest rate"? 

b. Argue in support of the statement. 

c. How do you account for the differences in the 
rates of income earned in different industries? 

261. The rate paid for loans has generally been 
much higher in the western part of the United States 
than it has been in the eastern part. How do you 
account for this? 

262. If the wages of unskilled labor should be 
$3.00 per day and the rate of pure interest 5 per cent 
for a long period of time, what changes would tend 



DISTRIBUTION: INTEREST 79 

to take place if wages should rise to $4.00 per day? 
If they should fall to $1.50? Why? 

263. High wages tend to cause an increase in the 
interest rate. Explain. 

264. "The rate of interest tends to represent at 
once the productivity of capital and the disutility of 
supplying capital." Assuming the statement to be 
true, show by just what process this is brought 
about. 

265. If the cost of building a mile of macadam 
road is $6,500, a mile of concrete road $12,000, and 
a mile of brick road $18,000 ; and if the annual cost 
per mile of keeping the roads in good repair is $600 
for the macadam road, $300 for the concrete, and 
$50 for the brick, which road will be the most eco- 
nomical when the current rate of interest is two per 
cent? When it is four per cent? Five per cent? 
Six per cent? Ten per cent? — (P.) 



XVIII. 
DISTRIBUTION: PROFITS. 

266. "Competitive profits (or losses) arise in con- 
sequence of deviations of market from normal 
prices." — Seager, p. 198. Give several illustrations. 

267. Give several reasons why the profits of en- 
terprisers are higher during a period of rising prices 
than during a period of falling prices. Illustrate 
from our experience during and following the Great 
War. 

268. a. Give an illustration, preferably from your 
own experience, of an enterpriser's receiving profits 
in excess of the amount necessary to induce him to 
undertake the enterprise. 

b. Of an enterpriser's receiving only sufficient 
profits to induce him to undertake the enterprise. 

269. Are competitive profits in the flour industry 
less because of trading in wheat futures? Because 
of insurance? Explain. 

270. We often hear people complain of what they 
consider the unreasonable profits of druggists or 

80 



DISTRIBUTION: PROFITS 81 

other merchants, saying that these dealers clear from 
fifty to a hundred per cent on a large part of their 
sales, while they have no right to more than eight or 
ten per cent. Does the fact that fifty or a hundred 
per cent are cleared on sales prove that a merchant 
gets more than eight or ten per cent real profit? 

271. "Under free competition the consumer gets 
the benefit of all improvement in method, yet pro- 
ducers arf always anxious to take up new methods." 
Explain and illustrate each part of this statement. 
-(T.) 

272. "Profits from a corporate enterprise may be 
concealed by watering the stock." Explain. 

273. a. Would there be risks in production under 
government ownership of industry? If so, would this 
be entered as a cost in the books of the state ? 

b. Would profits exist in such a state? 

274. Suppose that by the draining of swamp 
lands, one-fifth should be added to the tillable soil 
of the country. What effect would it tend to have 
on wages? On profits? On interest? On agricul- 
tural rent? Explain in each case. — T. 



XIX. 
MONEY. 

A. The Nature of Money. 

275. What is money? Why have money? Is an 
individual better off economically when he exchanges 
goods for money? 

276. "A nation is so much poorer by every dollar 
it sends out, just as an individual is so much poorer 
by every dollar he spends." Criticise both clauses. 
-(T.) 

277. "Foreign trade can add to the national 
wealth only when it brings in a money balance." 

a. What is the principal thing to be gained by 
maintaining trade relations with the outside world? 

6. When would it be of advantage to have our 
foreign trade bring in a money balance? 

c. What idea does the person quoted appear to 
have as to the relative values of economic goods? — 
(T.) 

278. "I don*t see that society as a whole loses any- 

82 



MONEY 83 

thing by the giving of a fireworks exhibition costing 
$1,000. Of course, the people who pay for the fire- 
works are just so much out. But then the $1,000 
goes to the other people who furnish the fireworks; 
so that society as a whole comes out even." Criti- 
cise.— T. 

279. "The only justification I can see for the lux- 
urious expenditure of the idle rich is that money is 
put in circulation — other folks have a chance to get 
hold of the idle hoard." — A university professor. 
Discuss the issue raised. 

280. "The Russian Government is expending $12,- 
000,000 a year on new aeroplanes, and although 
these may never be needed in war, the money will not 
be wholly wasted, for all the machinery is to be de- 
signed and constructed in Russia." — Editorial, The 
Independent, April 13, 1914. Discuss the economic 
principle involved. 

281. "That proportion of the money received from 
the bonds (sold by European governments to finance 
the present war) , which is spent in the home country, 
is not all wasted, but there is no getting back the 
money which is spent in the United States or other 
lands. For this reason, Germany is in better finan- 
cial condition to-day than any of the other belliger- 
ents. Her dealing has all been among her own peo- 



84 MONEY 

pie." — Roger W. Babson, in Daily News, August 
1, 1915. 

a. Did the allies follow a sound policy in buying 
goods and ammunition in the United States? Did 
Babson imply that they were wise or foolish in doing 
so? 

b. Need the allies get back the money which they 
spent in the United States in order not to lose? 

c. State in other than monetary terms the eco- 
nomic cost of war. 

282. "Money spent at home for goods is used over 
and over again and benefits many, but money spent 
in the Chicago Mail Order Houses benefits none of 
us but the buyer." 

a. Is $75 spent for china in Minneapolis used 
"over and over again" in Minneapolis? Explain. 

b. May it be economically advisable for the in- 
habitants of Minneapolis to buy in Chicago? Ex- 
plain. 

c. Might such a policy affect the population of 
Minneapolis numerically? If a reduction in popula- 
tion should ensue, what persons would lose by the 
change ? 

283. A resident of Mankato, Minnesota, plans to 
spend $300 for a supply of clothing for his family. 

a. Estimate the monetary gain to Mankato from 






MONEY 85 

having the money spent there. Specify in detail the 
probable division of the sum gained among the vari- 
ous persons in Mankato who may be expected to 
share in the gain. 

o. Make similar estimates, supposing the money 
to be spent in Minneapolis. 

c. Compare the advisability of this individual's 
trading in the one place or the other, (1) if he is a 
retired business man receiving his income from east- 
ern corporations; or (2) if he is a practising phy- 
sician who owns several residences in Mankato. 

284. The functions of serving as a medium of ex- 
change and as a measure of value "are not two dif- 
ferent functions, but merely two different aspects of 
the same thing." — Ely, Outlines of Economics, p. 
252. Do you agree? Explain. 

B. Monetary System. 

285. What is our standard money? Who deter- 
mines what our standard money shall be? Has it 
always been as it is now? 

286. Why is gold well suited to serve as money? 
In what way, if any, are each of the following com- 
modities inferior to gold as a monetary medium: 
wheat, cotton, diamonds, iron, copper, silver? 

287. "The coinage of money has almost univer- 



86 MONEY 

sally been regarded as a prerogative of the 
sovereign." Why? 

288. "Free (unrestricted) coinage and unre- 
stricted melting keep 23.22 grains of pure gold 
worth $1." Explain. Are both free coinage and 
free melting necessary to maintain the parity of the 
standard money? 

289. a. If an ounce of gold is worth thirty-two 
times as much as an ounce of silver, and if the gov- 
ernment should decree that both gold and silver 
should be standard money, and that there should be 
371.25 grains of silver in a silver dollar and 23.22 
grains of gold in a gold dollar (bimetallism at the 
ratio of 16: 1), in what money would debts be paid? 
Why? Which money would be overrated? Which 
money would become the standard ? What would be- 
come of the other money? 

b. At what ratio could both silver and gold be 
maintained as standard money under the above con- 
ditions? Could we be certain that this ratio would 
be the proper one next year? 

290. What is Gresham's Law? Why does not our 
silver dollar, worth about fifty cents, replace gold as 
standard money? 

291. "Token money should be light in weight." 
a. What is token money? 



MONEY 87 

b, What is meant by its being light in weight? 
Why is this necessary? 

c. The Congress of the United States passed a 
law in 1853 providing that the amount of silver in 
the fractional silver coins should be reduced. Why 
do you suppose Congress made this provision? 

292. "Gold is a commodity like all other economic 
goods, and its exchange value is determined accord- 
ing to the principle that controls the exchange value 
of other goods. Its value rises when the gold supply 
is relatively small, and vice versa." 

a. When gold is discovered, what evidence do we 
have of change in the value of gold in the vicinity of 
the "strike"? 

b. How can we ascertain whether gold is rising or 
falling in value? 

c. If gold falls in value, what effect does this have 
on creditors? On debtors? On receivers of fixed in- 
comes? On receivers of incomes which change less 
rapidly than other incomes? 

293. "A multiple standard would prevent the in- 
jury that inevitably results from a money standard." 
Explain what is meant by a multiple standard, and 
argue for the truth of this statement. 

294. "It has been estimated that the use of green- 
backs increased the expense of the Civil War by 



88 MONEY 

nearly $600,000,000." — Ely, Outlines of Economics, 
p. 278. Account for this increase in the expense of 
the war due to the use of greenbacks. 

295. "A Soviet journal published in Moscow in a 
recent review of the monetary situation in Russia 
states that at the beginning of the war the amount 
of paper roubles outstanding was 1,630,000,000; by 
the end of 1917 it had reached 27,300,000,000, at 
the end of 1919, 225,000,000,000 and at the end of 
1920, 1,168,000,000,000. The statement goes on to 
say that at the date of writing, October, 1921, 
prices in Moscow were 48,600 times higher than in 
1914, and the editor argued that, on this basis, the 
present monetary circulation was insufficient. He 
calculated the country's present needs for currency 
at 48,500,000,000,000 roubles." — Bulletin of Na- 
tional City Bank, January, 1922, p. 11. Account 
for this great increase in the amount of money. If 
a nation begins to issue irredeemable paper money, is 
there danger of a great over issue? Discuss. 



XX. 

CREDIT AND BANKING. 
A. Bank Credit. 

296. "Credit economizes the use of money." Ex- 
plain what is meant. 

297. "With $100 cash a bank can furnish $800 of 
exchange media." 

a. Just how can a bank do this? 

b. Why is it safe to do this? 

c. Under what conditions could it loan a still 
larger amount on a cash reserve of $100? 

d. Should the amount which may be loaned in this 
way be specified by law? 

e. If a bank holds a large quantity of high-grade 
bonds, may it more safely keep a small reserve than 
if it has, instead, invested a similar amount in farm 
mortgages ? Explain. 

298. What is a check? Why do most persons pre- 
fer to use checks in exchange transactions? Is it 
economically advisable that checks be used? 

299. If a resident of Davenport, Iowa, sends a 

89 



90 CREDIT AND BANKING 



will 



check for $20 to a dealer in St. Paul, the dealer will 
write his name across the back of the check and cash 
it at his bank. 

a. Why will he write his name upon the check? 
How will the St. Paul bank reimburse itself for the 
$20 given to the dealer? 

b. Suggest the probable route that the check 
would take in returning to the person in Davenport 
who drew it. 

300. A. B., of St. Louis, buys $1,275 worth of 
flour from X. Y., of Minneapolis. 

a. Suppose settlement to be effected with a wheat 
bill of exchange (also called a sight draft), and write 
out the substance of the bill which would be used. 

o. Suppose settlement to be made with a check, 
and write out a facsimile (in substance). 

c. Suppose settlement to be made with a bank 
draft, and write out a facsimile (in substance). 

d. Describe the imaginary course which each of 
these instruments would take. — (T.) 

301. Many deposits are due not to the deposit of 
money but to the borrowing of bank credit. Explain. 

302. The per capita amount of money, of all 
kinds, in circulation in the United States in 1913 
was about $35, yet the deposits per capita in sav- 
ings banks, July 1, 1913, were $48.57. How can 
this be?— P. 



CREDIT AND BANKING 91 

303. "Commercial banking stands or falls, as to 
its social utility, with the merits or demerits of the 
business man's doings." — Taussig, Principles of 
Economics , vol. 1, p. 353. Show that this is true. 

B. Bank Note Issue. 

304. A customer gives his note and opens a check- 
ing account. 

a. Show that if the bank should, instead of giving 
him a checking account, issue him due bills upon it 
(bank notes), the banking principle involved would 
be similar to that involved in a checking transaction. 

b. In what way would the bank's notes be superior 
to checks as media of exchange? 

c. What element of danger is involved in allowing 
banks to issue their own notes? 

d. Should we impose reserve requirements in re- 
gard to notes? Why? 

305. "The issuance of bank notes is far more im- 
portant in a community not accustomed to the use of 
checks, as rural districts, than in communities accus- 
tomed to the use of checks, as cities." Why is this 
true? 

306. Country districts need more money during 
the crop-moving season than at any other time in 
the year. 



92 CREDIT AND BANKING 

a. Show just why it is that an extra amount of 
money is needed at that time. 

b. Would it be advantageous if the farm com- 
munities could, through their banks, manufacture 
their own money? How could this be done? 

c. If they cannot provide their own money, how 
can they get the needed amount ? 

d. Trace the movement of this extra money from 
the time it leaves the banks in the farm community 
until it returns to the regular channels. 

307. From the time of the civil war until recently, 
banks could issue notes only upon United States 
government bonds. 

a. Point out one advantage of such a system. 

b. What must have been the chief disadvantage of 
the system? 

c. Is there any significance in the fact that there 
was a financial panic in 1907, and that this note-issue 
provision was temporarily amended at the session of 
Congress next following, in 1908, making it possible 
to issue bank notes upon collateral other than United 
States bonds ? 

308. "If banks can issue their own notes when 
called for at the counter, we can always have all the 
circulating medium we need. When trade is taking 
place, securities will be abundant and can be used as 
security for notes, and when trade abates the notes 



CREDIT AND BANKING 93 

will be deposited in the banks, returned to the issuing 
banks and be canceled and retired." 

a. Do jou believe such a system of note-issue to 
be proper? 

b. Would it be well to limit this function to cer- 
tain banks? 

c. What advantage might accrue from prohibiting 
banks paying out the notes of other banks ? 

d. In what way is our Federal Reserve Banking 
System analogous to the system here suggested ? 

309. What is the significance of the provision al- 
lowing the Federal Reserve Board to suspend the 
40% reserve requirement for federal reserve notes 
and at the same time impose a tax upon the deficiency 
in the reserve? 

310. Describe and illustrate the process by which 
(1) a commercial transaction gives rise to 30-day 
commercial paper; (2) this paper comes into the 
possession of a national bank; (3) this bank redis- 
counts the paper at the federal reserve bank; (4) 
the federal reserve bank sends federal reserve notes 
to the national bank in payment ; (5) the commercial 
paper is taken up (paid) when due. 

C. The Clearing House. 

311. October 1, 1907, the different banks of Ann 



94 



CREDIT AND BANKING 






Arbor brought to the clearing claims against each of 
the other banks as follows : 



No. 1 against 
No. 2, $2,213.19 
No. 3, 1,865.09 
No. 4, 2,415.96 
No. 5, 512.21 



No. 2 against 
No. 1, $4,284.78 
No. 3, 2,172.45 
No. 4, 3,043.18 
No. 5, 655.87 



No. 3 against 
No, 1, $4,974.66 
No. 2, 1,607.79 
No. 4, 1,093.24 
No. 5, 625.88 



Total $7,006.45 Total $10,156.28 Total $8,301.57 



No. 4 against 
No. 1, $3,078.73 
No. 2, 1,793.16 
No. 3, 973.73 
No. 5, 4,633.96 

Total $10,479.58 



No. 5 against 
No. 1, $ 332.15 
No. 2, 377.17 
No. 8, 1,515.46 
No. 4, 181.56 

Total $2,406.34 



a. Compute the balance for or against each bank, 
fo. How much money was needed at the clearing 
house that day? 

c. How can you account for the condition shown 
by bank No. 5, namely, that bank No. 4 cashed so 
many checks drawn upon this bank, while the other 
banks cashed so few, and that it cashed but few for 
any of the other banks ? From this showing, is bank 
No. 5 necessarily the smallest of the five banks ? 

d. If there are only two banks in a town, how do 
they "clear"? 

e. Show concretely the saving that results from 
the clearing house in this town of five banks. 

/. State definitely the primary function of the 
clearing house. 



CREDIT AND BANKING 95 

g. Is the amount of bank clearings a fair index of 
the prosperity of a community? Explain. — (T.) 

312. If a resident of Peoria sends a check to a 
dealer in Chicago, the check may or may not go 
through the clearing house in Peoria. Explain. 

D. The Bank Statement. 

313. A bank statement shows the marketable 
property of the bank under the caption, assets, or 
resources, and the liabilities of the bank to the stock- 
holders, or owners, and to the depositors, or custom- 
ers, under the caption, liabilities. 

a. Why do banks issue statements? 
6. The assets and liabilities are always exactly 
equal. How do you account for this? 

c. If the assets and liabilities are always equal, 
how can the statement indicate the strength of the 
bank? 

d. Are the following resources or liabilities (if lia- 
bilities, are they to the stockholders or to the de- 
positors) : capital stock, cash, due from other banks, 
overdrafts, circulation, undivided profits, U. S. 
bonds, surplus, deposits, loans and discounts? 

314. If men in organizing a bank put in $20,000 
in gold, the statement will then stand: Assets, — 
cash, $20,000 ; liabilities, — capital stock, $20,000. 



96 CREDIT AND BANKING 

a. How will the statement be affected if $10,000 
is spent for a site and building? 

b. If X. deposits $200 in gold? ■ 

c. If Y. cashes a $50 check drawn by X. ? 

d. If Z. opens an account by depositing a $100 
check written by X. ? 

e. If Z., wishing to borrow, gives his note for $300 
to the bank and has this amount, less $2.45 interest, 
credited to> his deposit account ? 

/. If the bank spends $1,000 for bonds? 
g. If the bonds are later sold for $1,100? 
h. If Z. pays his note at maturity? 

315. "The total loans and investments of report- 
ing member banks of the Federal Reserve Banking 
System declined from $16,581,545,000 on Dec. 10, 
1920, to $14,758,750,000 on Dec. 7, 1921, while their 
net demand deposits declined from $10,865,474,000 
to $10,208,340,000." — Commerce MontUy, Jan., 
1922, p. 19. Account for the difference in the fall- 
ing off in these two items. 






XXI. 
FOREIGN EXCHANGE. 

316. Par of exchange on London is $4,866. How 
is this figure derived? 

317. Suppose that X. in New York sells A. in 
Liverpool a cargo of cotton for £1,000, and that B. 
in Liverpool sell I. in New York a quantity of steel 
for £1,000. 

a. How can these bills be most easily paid? 

b. Why would it be unwise for A. to ship £1,000 
in gold to X. and for I. to ship a similar amount 
to B? 

c. I. owes B. £1,000, or $4,866.66. If it costs 
three cents to ship £1 to England, how much would 
I. be willing to pay X. for his claim on A. with 
which to pay B., rather than ship gold to B.? 

d. For how much per pound would X. be willing 
to sell his claim rather than have the gold shipped 
to him at his expense? 

e. If other persons have also sold abroad and pos- 
sess claims on Englishmen, they will compete with X. 
to sell English credit to I. What effect will this have 
on the price per pound that importers must pay for 

97 



98 FOREIGN EXCHANGE 

English credit with which they may discharge their 
obligations? How low can this normally go? Why? 

/. If other persons have also bought abroad, they 
will compete with I. in buying X.'s claim. This will 
have what effect on the price that exporters can get 
for their bills? How high can this normally go? 
Why? 

g. What is the high "gold point"? The low "gold 
point"? 

318. If you are in country A and desire ten ounces 
of gold in a distant country B, under what condi- 
tions could you buy in A, the right to this much 
gold in B, for less than ten ounces of gold? Under 
what conditions would you have to give more than 
ten ounces? Under what conditions would the price 
be just ten ounces? 

319. What is the fundamental reason for the rate 
of exchange between two gold standard countries ever 
being other than par? If the Atlantic Ocean were 
a narrow river, would the rate of exchange on Lon- 
don normally vary more, or less, from par than it 
does now? 

320. If London credit is selling in New York for 
$4.89 per £, should you expect London banks to pay 
more or less than face value for drafts on New York 
banks ? To charge more or less than face value for 
drafts payable in New York? Explain. 



FOREIGN EXCHANGE 99 

321. American exporters do not sell their claims 
on their foreign customers directly to American im- 
porters : they sell to middlemen. Who are the middle- 
men? Does the middleman sell the piece of paper 
which he receives from the American exporter to the 
American importer, or does he give the American im- 
porter another piece of paper? If the latter, what 
does he do with the paper that he buys from the 
exporter? 

322. If a New York exchange broker has ex- 
hausted his London balance, and is unable to buy 
American exporters' claims, what must he do to re- 
plenish his balance so that he can sell drafts to 
American importers? Then what price must he 
charge importers for his drafts? Explain. 

323. a. If you are a wheat exporter and have sold 
a shipment for £1,000, what can you realize on your 
claim if exchange is $4.84? If exchange is $4.87? 

b. Suppose you are an importer and have bought 
merchandise to the value of £1,120. What will it 
cost you to pay your debt if exchange is $4.84? If 
exchange is $4.87? 

c. What principle can be deduced as to the effect 
that a high or a low rate of exchange tends to have 
on exports? On imports? — (T.) 

324. Consult the daily papers and find the rate of 



100 FOREIGN EXCHANGE 

exchange in New York on London to-day ; on Paris ; 
on Berlin. 

325. Excessive exports from America tend to 
cause a lo ^ rate of exchange on London ; but this 
rate of exchange tends to decrease ex P°rts and 
decrease imports, and thus bring the rate again to 
normal. Make the proper erasures and write a 
similar statement, beginning, "Excessive imports 



326. Do the following tend to raise or lower the 
rate of exchange in New York on London? Explain. 

a. European travel by Americans? 
6. American travel by Europeans? 

c. Borrowing abroad by selling American securi- 
ties ? 

d. Buying of postal money orders to be sent 
abroad ? 

327. "A country that produces gold tends to ex- 
port more gold than it imports." Show how the 
production of gold in the United States would lead 
to a rate of exchange that would make the sending 
of gold profitable. 

328. "Movements of gold as a result of a high or 
low rate of exchange tend to be self-corrective." 
Explain. 



FOREIGN EXCHANGE 101 

329. "Fundamentally the rate of exchange be- 
tween two countries depends upon what a unit of 
the money of one country will buy in that country as 
compared with what a unit of the money of the other 
country will buy in that other country." 

a. Does this seem to be reasonable? As between 
two gold standard countries, should you expect an 
ounce of gold to buy approximately as much in one 
as in the other? Why? If so, then could the rate of 
exchange be determined approximately by comparing 
the gold content of the monetary units of the two 
countries ? 

b. If one or both of two countries are not on the 
gold standard, how will the rate of exchange be de- 
termined ? Why has the rate of German exchange in 
New York declined as the amount of paper money in 
Germany has increased? 

c. The German price level was given as 3467 on 
January 4, 1922, the average for the middle of 1914 
being taken as 100. If our price level was 150 then, 
on the basis of 1914, what should you expect a mark 
to have been worth in New York? Explain. 

d. "The principle stated above presupposes free- 
dom from abnormal restrictions of trade and the ab- 
sence of radical changes in tariff policies, and recog- 
nizes that temporary fluctuations may occur in 
response to seasonal and psychological influences. 
It should also be added that the cost of transporta- 
tion must be allowed for and that certain variations 



102 FOREIGN EXCHANGE 

of the general price level from the prices of goods 
entering into international trade must be taken into 
account." — Chandler, Commerce Monthly, May, 
1921, p. 6. Explain the influence of each of these 
factors on the actual market rate of exchange. 

330. "Sterling exchange in New York during the 
war was generally maintained at a very slight dis- 
count below par, and from the end of 1916 to March 
20, 1919, was maintained at a discount of only about 
two per cent, . . . despite the restrictions on ship- 
ments of gold from London, despite the virtual sus- 
pension of gold payments in London, and despite the 
gigantic adverse trade balance of Great Britain. 
. . . The British Government was using its credit 
for borrowing in New York and was using the pro- 
ceeds of its borrowing to protect sterling exchange. 
. . . Through much of 1916 and down to the entry 
of the United States into the war in 1917, the bank- 
ing house acting for the British Government in the 
United States was purchasing in the New York 
market sterling exchange in an amount averaging 
$10,000,000 per day. . . . With the entrance of 
the United States into the war many billions of dol- 
lars were placed at the disposal of the British Gov- 
ernment and were used both for new purchases and 
for the protection of sterling exchange." — Ander- 
son, The Chase Economic Bidletm, January, 1922, 
p. 14. 

a. Show why the conditions mentioned at the close 



FOREIGN EXCHANGE 103 

of the first sentence should have been expected to 
reduce the rate of exchange on London. 

b. Explain just how sterling exchange was pro- 
tected. Could the word purchase be properly sub- 
stituted for the word protect in this quotation? 



XXII. 
FOREIGN TRADE AND THE TARIFF. 

A. The Theory of Free Trade. 

331. "Domestic trade cannot increase the wealth 
of the nation. It is only by foreign trade, and then 
only by getting more than is given, that a nation 
can enrich itself." Discuss. — (T.) 

332. Country A can produce pig iron at a cost of 
ten days' labor per ton and broadcloth at a cost of 
five days' labor per yard. Country B can produce 
the iron at a cost of fifteen days' labor and the cloth 
at a cost of six days' labor. The comparative costs 
of the two articles in each of these countries is, then, 
as follows: Country A, one ton equals two yards; 
Country B, one ton equals two and one-half yards. 

a. Prove in detail that if transportation and all 
costs other than labor be ignored, exchange of these 
products between A and B will pay. 

o. Is such exchange in line with social economy? 

c. Which country is the more efficient in produc- 
ing iron? In producing cloth? — (T.) 

104 



FOREIGN TRADE AND THE TARIFF 105 

333. Country X can produce wheat at cost of one- 
half day's labor per bushel and knives at a cost of one 
and one-half days' labor per dozen ; Country Y can 
produce the wheat at a cost of one day's labor and 
the knives at a cost of two days' labor. Which coun- 
try is the more efficient in producing wheat? In 
producing knives? Will exchange pay? Prove in 
detail. 

334. Prove that exchange will not pay if compara- 
tive costs are equal. 

335. "We know that England can make ships 
more cheaply than we can, and so we should let her 
do the shipbuilding and turn our capital to such 
things as we can do better than she can." Assuming 
the conclusion — that we should let England build 
the ships — to be sound, show from the principle in- 
volved in problems 332 and 333, that the reason 
given is not satisfactory. 

336. "The great advantage of foreign trade is in 
furnishing a market for our surplus products which 
would otherwise go to waste." Why do we produce 
more of certain kinds of goods than we care to con- 
sume? Are these "surplus" products? Is a farmer's 
corn crop a surplus to him? Discuss. 

337. "It will never pay us to import anything 



106 FOREIGN TRADE AND THE TARIFF 

which we ourselves can produce." Show that this 
proposition is erroneous. 

338. "If we buy rails from England, we get the 
rails, of course, but they get our money ; while, if we 
buy rails at home, we have the rails and the money 
too." — A statement falsely credited to Lincoln. 

a. Is there any reason to expect that our buying 
rails in England would carry off our regular stock 
of money? Explain. 

6. Should we regret such trading because it de- 
creases our stock of money, if that should result? 

c. Substitute "cotton" for "money," throughout 
the above quotation, and show the fallaciousness of 
the doctrine.— (T.) 

B. The Theory of Protection. 

339. What is a tariff for revenue only? A tariff 
for protection? What general class of goods would 
bear a duty in the one case? In the other? 

340. a. What is the "infant industry" argument? 

b. Is it economically sound? 

c. This argument implies that tariffs should be 
maintained for how long a period of time? 

d. Is "infant industry" protection likely to be 
permanent? Discuss. 

341. "Though injurious economically, a protec- 



FOREIGN TRADE AND THE TARIFF 107 

tive tariff may be justifiable politically if there is 
sufficient likelihood of war." 

a. Give the supporting argument. 

b. Cite historic illustrations in support of this 
position. 

342. "Germany, with a tariff policy, has had the 
advantage of free-trade England in securing tariff 
concessions in foreign countries." Explain. Does 
this furnish an argument in favor of protective 
tariffs? 

343. "A protective tariff works towards national 
efficiency, for it takes wealth from those who are 
less capable and puts it into the hands of those who 
are more capable." Show that a protective tariff 
may have this result. Do you consider this a valid 
argument in favor of protection? 

344. a. Why are custom duties a popular means 
of getting revenue? 

b. How can they be used to secure revenue with- 
out furnishing protection? How is this done in Eng- 
land? 

C. The Relation of Goods Expoeted to Goods 
Impoeted. 

345. "Farmer Jones went in debt last year for 
$4,000 worth of machinery, tile, fertilizer, and other 



108 FOREIGN TRADE AND THE TARIFF 

equipment for his new farm, but sold only $2,000 
worth of produce." 

a. Is Jones following a foolish policy? 

b. Part of his crop during the ensuing years must 
be used for what purpose? 

c. Compare his exports and imports for the first 
year mentioned ; for the years immediately following. 

d. If Jones later loans money to his neighbors, 
how will the exports and imports of his farm com- 
pare during the years he makes these loans? 

e. How will they compare if he then decides to 
"live better," — not to loan out so much money each 
year? 

/. What similarity is there between this case and 
our relation thus far with Europe? 

346. a. What should you expect to be the relation 
between the goods exported and the goods imported 
of a country during the following periods: (1) 
When it is first open to settlement or to industrial 
enterprise; (2) when it has become quite well sup- 
plied with imported capital goods; (3) when its 
citizens begin to make investments in other countries ; 
and (4) when a relatively large amount of such 
foreign investments have been made? 

b. In which of these stages is the United States? 
England ? Mexico ? 

347. Will the following tend to increase our ex- 
ports of goods or our imports of goods: Explain. 

a. Foreign travel by Americans? 



FOREIGN TRADE AND THE TARIFF 109 

b. Travel in America by foreigners? 

c. Transportation of American exports in foreign 

ships ? 

d. Borrowing of European capital? 

e. Interest payments on capital borrowed? 
/. Payment of capital borrowed? 

g. Loaning of capital abroad? 

h. Receiving interest from abroad? 

i. Insuring in foreign insurance companies? 

j. Maintenance of American ambassadors abroad? 

k. Supporting foreign missionaries? 

Z. Export of gold? 

m. Sending home of money by immigrants? 

348. "A favorable trade balance is an excellent 
sign of vigorous national life, and of a sound eco- 
nomic structure. It means that the nation is taking 
in more than it is paying out." — Stbaus, Investor's 
Magazine, Dec. 1, 1914. 

a. Do you agree with the first statement? 

o. Illustrate this point by comparing our "favor- 
able," with England's "unfavorable," balance of 
trade. 

c. State the various things that a favorable bal- 
ance of trade may mean. 

349. "The true way to quicken foreign demand 
(for British goods) was to open the ports to that 
foreign supply with which they paid us for what they 



110 FOREIGN TRADE AND THE TARIFF 

bought from us." — Morley's Gladstone, vol. 1, p. 
267. Show that the above is sound doctrine. — T. 



250. Do the labor and capital of a country tend 
to go into the most profitable lives of industry? If 
a protective tariff, or a bounty or subsidy, is used 
to divert labor and capital into lines of industry that 
they would not otherwise enter, what will tend to be 
the effect upon national prosperity? Is it always 
best, for the nation, to have business men devote 
themselves to the work at which they can make the 
most profit? Is it generally best? Discuss — illus- 
trate. 

D. The Cost of Protection. 

351. "Tariff legislation encourages and develops 
sectional selfishness." Explain. 

352. "A protective tariff fosters political corrup- 
tion." How can this be true? Has protection in the 
United States had this result? Explain and illus- 
trate. 

353. "A protective tariff tends to hasten the de- 
struction of our natural resources." — Seager, p. 
402. 

"On the contrary, free trade, by stimulating com- 
petition, makes it uneconomical to conserve our lum- 






FOREIGN TRADE AND THE TARIFF 111 

ber, for example ; it becomes economical to cut only 
the largest trees." 

Discuss the point at issue. 

354. "The protective tariff is the mother of 
trusts." Do you see any reason for this view? Ex- 
plain. 

355. The amount added to a price by a tariff duty 
does not represent a social cost if the good will be 
produced without the tariff ; but it does represent a 
social cost if the protective duty is necessary to the 
production of the good. Show that this is true. 
Then is protection less objectionable when it is not 
needed? What is the objection to it in such a case? 

356. "A reduction of $60,000,000 in tariff duties 
means a reduction in the burden upon the people's 
consumption of approximately $600,000,000." — 
Senator Newlands, in Tlie Independent, 73:757. 
Explain. 

357. "To the same extent that the home market 
is wrested from foreigners and given to protected 
home producers, the foreign market is wrested from 
unprotected home producers." — Seagee, p. 403. 
Show that this is necessarily true. — T. 



XXIII. 

MONOPOLY. 

358. "The monopoly problem is one of the most 
important practical questions with which economics 
has to deal." — Seager, p. 407. Justify this state- 
ment. 

359. What conditions warrant the establishment 
of a public legal monopoly? Illustrate. 

360. Give an example of a private legal monopoly. 
Should this monopoly have been given ? 

361. "If a patentee does not make use of his 
patent it should be revoked." Do you agree? Dis- 
cuss fully. 

362. What is a natural monopoly of situation? 
A capitalistic monopoly? Give examples of each. 

363. "Monopoly is more economical socially than 
competition." Explain what is meant and discuss 
the validity of the statement. If the statement is 
true, does it follow that we should encourage monop- 
oly? Explain. 

112 



MONOPOLY 113 

364. "Monopoly is the natural product of indus- 
trial evolution." Show that there is some ground 
at least for accepting this statement. 

365. See questions on monopoly price in section 
VI. 

366. Should the following be furnished to the resi- 
dents of a city by a company having a monopoly, or 
by competing companies : water, ice, gas, electricity, 
milk, bread, telephone service, street railway trans- 
portation, taxi-cab service? Give reasons for con- 
clusion in each case. If the decision is in favor of 
monopoly, specify the form of public control that 
should prevail — public ownership or regulation. 

367. "The franchises granted by these cities are 
the best possible for the gas companies." — A dealer 
in gas company bonds. 

a. Name some of the probable stipulations in these 
franchises. Suggest some probable omissions. 

b. How should you wish the franchises changed 
if you were a citizen of one of these cities? If you 
were a citizen, but at the same time a subscriber to 
the stock of the gas corporation? 

368. Should the policy of the United States gov- 
ernment be to destroy monopolies or to regulate 
them? Discuss the issues involved. 



XXIV. 
THE RAILROAD PROBLEM. 

369. A certain American railroad is said to haul 
freight at an average cost of one mill per ton-mile. 

a. What is a ton-mile? 

b. How is the railroad able to carry freight at 
such a low cost? 

c. What would be the cost at this rate of shipping 
a ton of shoes one thousand miles? About what 
would be the cost for each pair of shoes? 

d. What is the social significance of this low cost 
of transportation? 

370. Enumerate the principal costs which a rail- 
road has to meet. How are these various items of 
cost affected by, say, a ten per cent increase in traf- 
fic? How would dividends be affected by such an 
increase in traffic if rates remained as before? Is it 
possible that dividends can be increased by charging 
a special low rate for this additional traffic? 

371. Try to estimate the added cost involved in 
carrying (a) & ten-pound box from Minneapolis to 
Chicago; (6) an additional box-car empty; (c) an 
additional box-car loaded. — (C.) 

114 



THE RAIROAD PROBLEM 115 

372. If empty cars are being brought to Minneap- 
olis to be filled with flour, at what rates may the 
railroads profitably offer to haul freight in them to 
Minneapolis? May there be social disadvantages in 
allowing the railroads to carry freight at these low 
rates ? Explain. — ( C. ) 

373. Show that if a railroad runs from A to C 
through B, it might be to the interest of the shippers 
at B, if the railroad were allowed to carry freight 
from A to C at a less rate per ton than is charged 
for carrying freight from B to C. Give a practical 
illustration of this problem by substituting the names 
of cities in the United States for the letters. 

374. Should freight rates be based on the cost of 
rendering service or on "what the traffic will bear"? 
At least what costs must be covered in every case? 
Illustrate. How should the relative rates for hay 
and brick be determined? Discuss. 

375. "It is an elementary law of trade that better 
prices per unit should be made for large quantities 
than for a small quantity. Then why should you 
object if railroads make special rates for large ship- 
ments?" Discuss. 

376. "The law does not attempt to prohibit a 
merchant from selling to different individuals at dif- 
ferent prices or even from giving away his wares. 



116 THE RAILROAD PROBLEM 



tout 



Then why should the railroads be so hedged about 
by legal prohibitions upon the prices to be charged?" 
Discuss. 

377. "The Standard Oil Company entered into a 
contract with a railroad under which the railroad 
was to charge it only ten cents per barrel for trans- 
porting its oil while charging other companies thirty- 
five cents for the same service, and was to pay to 
it twenty-five cents of the excessive charge imposed 
upon its competitors." — Seager, p. 439. 

«. Estimate the advantage that this gave to the 
Standard Oil Company. 

o. Why should the railroad have wished to enter 
into such a contract? 

c. Were the directors of this company guilty of 
moral turpitude in making such a contract? Were 
the officers of the railroad? 

378. "The fact that railway service is subject to 
decreasing cost has made public regulation of rates 
more imperative than it would otherwise have been." 
Explain. 

379. Should federal regulations extend to intra- 
state business? Argue both affirmatively and nega- 
tively. 

380. "The power to tax railroads and the power 



THE RAILROAD PROBLEM 117 

to regulate their rates should be lodged in the same 
hands." Give supporting argument. Should the 
power to adjust wages be exercised by the board that 
fixes rates? Discuss. 

381. List the principal arguments for and against 
federal ownership of railroads. 



XXV. 

THE LABOR PROBLEM. 

382. "The labor problem has arisen because the 
machine has been substituted for the tool." Do you 
agree? Discuss. 

383. Compare the ability of a wage-earner to get 
the maximum wage that competition will permit, with 
the ability of a dealer in raw material to get the 
maximum price that competition will permit. In 
how many respects do they differ? 

384. "It is generally considered bad form for an 
employer to entice an employee away from a fellow 
employer by offering an increase in wages." Is this 
true? If it is, how do you account for it? Does it 
at all explain trade unionism? 

385. "If we had perfectly free competition among 
employers and perfect mobility among employees, 
labor unions would be of no avail in determining 
wages, save as they limited the number of wage 
workers in particular employments." Argue in sup* 
port of this statement. 

118 



THE LABOR PROBLEM 119 

386. Certain persons see in trade unionism an at- 
tempt on the part of the wage-workers to control, in 
part, their industrial life, just for the sake of con- 
trol. Do you see any reason for this view? Is there 
any similarity between a desire for membership in a 
trade union and the desire for a share in the control 
of political affairs? Discuss. 

387. "College professors are demanding, more and 
more, a share in the administrative control of our 
colleges and universities." If this is true, does it help 
us to understand trade unionism ? 

388. What should you expect would be the effect 
of the following upon trade unionism: An extension 
of educational opportunities? Prohibition? The 
exclusion of immigrants? The elimination of the 
mentally "unfit"? 

389. Is this any reason why employers should 
prefer to use the term open shop rather than the 
term non-union shop? 

390. "Employers and employees often forget that 
they have duties to society." 

a. Give several illustrations of this point. 

b. Have street car operators a right to strike and 
prevent the cars from being run ? Explain fully. 

c. Is this aspect of industry, social dependence 



120 THE LABOR PROBLEM 

upon particular industries, becoming more pro- 
nounced? Explain and illustrate. 

391. "It is manifestly unfair for a labor unionist 
to refuse to work at a given wage and at the same 
time to deny to his unemployed brother the right to 
work at this wage." Discuss the issue involved. 

392. Samuel Gompers, president of the American 
Federation of Labor, in testifying before the Senate 
committee that was investigating the steel strike in 
1919 referred to the welfare work of the United 
States Steel Corporation as "hell-fare work." Ac- 
count for his attitude. 

393. "So long as there is only a limited amount 
of economic income and limited opportunity for con- 
trol there will be a conflict over the division of the 
same." Do you agree? Discuss. 



XXVI. 

GOVERNMENT EXPENDITURE AND 
GOVERNMENT REVENUE. 

A. Introduction. 

394. What is the question that must be answerefl 
in determining whether or not there has been a real 
increase in the burden of public expenditure? 

395. "The paying of taxes involves no hardship, 
for what the government takes from the taxpayer it 
immediately returns to him for goods and services." 
Criticise. Discuss the truth of the statement if the 
"for" near the end of the sentence were changed to 



396. "Expenditures for military purposes are jus- 
tifiable, as they furnish employment to men who 
might otherwise starve." Examine. 

397. What connection is there between the follow- 
ing factors and the amount of government expendi- 
tures: The spirit of nationalism, democracy, skill 
in the mechanical arts, city life? Illustrate. 

121 



122 EXPENDITURE AND REVENUE 

398. "The entire question (of the government's 
taking over certain activities) turns upon the choice 
of the means of satisfying certain common collective 
wants." — Adams, The Science of Finance, p. 67. 
Justify this statement. Mention the elements that 
influence choice in this matter. 

B. Revenue. 

399. "The fee system is bad when the fees are re- 
tained as salary by the officer collecting them." Dis- 
cuss. 

400. What should determine the proportion of the 
cost of street paving that should be paid by special 
assessment? What is the rule in your city? 

401. Adam Smith's four canons of taxation may 
be characterized as follows : Aibility, certainty, con- 
venience, and economy. Amplify and illustrate each 
canon. 

402. "No tax can be just unless it leaves individ- 
uals in the same relative condition in which it found 
them." — McCulloch, Treatise on Taxation, quoted 
from Bullock's Selected Readmgs in Public 
Finance, p. 240. Examine. 

403. "Equity in the apportionment of taxes re- 
duces the burden for the support of the state to its 



EXPENDITURE AND REVENUE 123 

minimum." — Adams, The Science of Finance, p. 322. 
Explain. 

C. Shifting and Incidence of Taxes. 

404. Shifting of taxes is a price phenomenon. 
The shifting of a tax can take place only through a 
withholding of supply. 

a. Argue in support of the second statement. Il- 
lustrate. 

6. Can a tax upon houses be shifted to tenants? 
Can a tax upon land, levied according to land value, 
be shifted to tenants? Explain. 

405. Should you expect a tax upon excess profits 
to increase the price of goods? Explain. 

406. Suggest a plan for corporation taxation that 
would not allow shifting ; one for the taxing of mer- 
chants. 

407. See problems in section VI that involve shift- 
ing of taxes. 

D. The Industrial Results of Taxation. 

408. "A heavy tax on the rich might have the 
same consequence for the poor as would, say, a mod- 



124. EXPENDITURE AND REVENUE 

erate tax on wages." — Pierson, Principles of Eco- 
nomics, ii, p. 387. Argue for this proposition. 

409. "The effect of placing heavy taxes on the 
very rich is most harmful in countries which own few 
securities (either domestic or foreign), or in coun- 
tries owning securities for which no market can be 
found abroad." — Pierson, Ibid., p. 389. How can 
this be true? 

410. "Taxation as a weapon of retaliation often 
proves to be a boomerang." — Seligman. Give sev- 
eral possible illustrations. 

411. "Every tax discourages some kind of pro- 
duction because the aim of taxation is to divert a 
portion of the productive force of the community 
from producing what individuals desire as individuals 
to producing something else which they desire in 
their corporate capacity." — Cannan, Equity and 
Economy in Taxation, Econ. Jour., 11:476. 

a. Illustrate the truth of the quotation by assum- 
ing a tax to be placed on furniture; on cattle; on 
the income of teachers. 

o. Is this what is usually meant by saying that a 
tax discourages production? Does a tax on land 
value tend to discourage production? Distinguish 
between a decrease in total production and a change 
in the form of production. 



EXPENDITURE AND REVENUE 125 

412. "We (should select) in the imposition of 
fresh taxes commodities for which substitutes cannot 
easily be found and with which consumers will not 
willingly dispense, in order that the incidental loss 
to producers may be as small as possible. 3 ' — Sidg- 
wick, Principles of Political Economy, p. 573. Ex- 
plain. 

E. The General Property Tax. 

413. Is all property equally able to bear taxes? 
Explain. 

414. Why is the general property tax particu- 
larly unsuited to the taxation of business and pro- 
fessional men ? 

415. "Although credits may be included within 
the term 'property' from the point of view of law, 
they are not property in any true economic sense." — 
Plehn, Introduction to Public Finance, p. 185. 
Defend this statement. 

416. "Minnesota taxes money and credit at the 
rate of three mills, while it taxes other property from 
six to eight times this rate. This is justifiable both 
theoretically and practically." Explain. 

417. "Strictly enforced the general property tax 
must inevitably impose a burden upon forest lands 



126 EXPENDITURE AND REVENUE 

which in certain cases might easily amount to one- 
half or even three-fourths of the total income when 
finally received." — Fairchild, Proceedings of the 
National Tax Association, 1912, p. 373. Mention 
other things of which the above is true. Does this 
constitute an argument against the general prop- 
erty tax? Explain. 

F. The Inheritance Tax. 

418. The inheritance tax is justified on several dif- 
ferent grounds. Suggest three or four of these. 
Which is the best? 

419. Is a national inheritance tax preferable to 
state inheritance taxes? Discuss. 

420. Examine the following propositions : 

a. Rates on inheritances should vary inversely 
with nearness of kin. 

b. Rates should vary directly with nearness of kin. 

c. Rates should not vary with relationship. 

d. Rates should not vary with the amount in- 
herited. 

G. The Income Tax. 

421. "The only possible objection to relying al- 
most exclusively upon an income tax for public rev- 



EXPENDITURE AND REVENUE 127 

enue is that it is difficult, or impossible, to administer 
it properly." 

a. Develop an argument in support of this con- 
tention. 

b. Is the difficulty of proper administration in- 
surmountable? Discuss. 

422. Give several illustrations to show what is 
meant by "collection at the source." 

423. "We rely upon 'information at the source' 
rather than 'collection at the source' in our national 
income taxation." Explain. 

424. Argue that income from personal services 
should be taxed at a lower rate than income from 
property. 

425. Account for the growing demand for state 
income taxes in this country. 

426. Is there any objection to having both a na- 
tional and a state income tax? Would that amount 
to double taxation? 

H* The Taxation of Corporations. 

427. Should corporations be taxed at the rates 
imposed upon other property ? 



128 EXPENDITURE AND REVENUE 

428. "The service charges of public utility cor- 
porations should be pushed down to a no-tax basis 
and the corporations exempted from taxation." Give 
arguments for and against. 

429. Should not Michigan residents holding stock 
in an Ohio corporation be free from taxation upon 
the stock inasmuch as Ohio taxes the corporation? 
Should they not be taxed upon it that they may 
share in the burden of their state government? 

430. "Life insurance is a tax, and to tax it is to 
commit the economic barbarism of taxing a tax." — 
An insurance journal. 

a. What does the author mean by calling life in- 
surance a tax? Is he justified in so characterizing 
it? 

b. Show that the tax on insurance companies is 
not inequitable. 

431. What is the proper basis for the taxing of 
corporations: property, gross revenue, or net rev- 
enue? Explain. 

432. How shall the property value of a railroad 
be apportioned, for purposes of taxation, to the dif- 
ferent political divisions through which the road 
runs? 

433. "Taxes levied upon the revenue of corpora- 






EXPENDITURE AND REVENUE 129 

tions usually have a property basis, and thus revenue 
taxation cannot be defended on the ground that it 
avoids the difficulties of a property valuation. 5 ' 
Examine. 

I. Single Land Tax. 

434*. State the argument for a single land tax; 
against it. 

435. "A tax on goods increases their price, a tax 
on land decreases its price. The aim should be to 
make all things low in price. Therefore, we should 
tax land only." Discuss. 

436. "Rent is a price paid for the management of 
land in the industrial system." Argue in support of 
this statement. What bearing has this on the single 
tax controversy? 

437. Contrast the position of the Physiocrats in 
regard to a single land tax with that taken by Henry 
George. 

438. Sismondi asked, in answer to a demand for a 
revision of the land tax, "Do you wish equality be- 
tween men or between lands ?" Show that this ques- 
tion was pertinent. 

439. What relation is there between the tax on the 



130 EXPENDITURE AND REVENUE 

unearned increment of land and the single land tax? 
What is the vital difference between them? 

440. "An expected increase in land value is in- 
cluded in the purchase price." Explain. Suggest a 
plan for taxing the increase in land value that will 
not confiscate present value. 

441. What objection, other than that of confiscat- 
ing from present owners, is there to taxing away all 
of the increase in land value? 

442. What is the objection to modifying the gen- 
eral property tax in the one particular of taxing 
away the benefits resulting from the privilege of land 
ownership? 






XXVII. 
PROJECTS OF ECONOMIC REFORM. 

443. "The economist reformer necessarily bases 
his proposals upon some concept of an ideal so- 
ciety." 

a. Outline briefly the main features that you 
would expect in an ideal society. 

b. Are any economic reforms necessary to the 
realization of, or to the approach toward, this ideal? 
If so, what are they? 

444. "Proposed reforms are 'mechanical' or 'evo- 
lutionary.' " Distinguish between these two classes 
of proposals. Illustrate each. 

445. "Pecuniary gain, not social utility, guides 
individuals in their industrial conduct." Show that 
desire for pecuniary gain may lead to the best service 
for society ; that it may lead to harmful, or at least 
not to the best, service. Which condition is the 
more prevalent? If price (desire for pecuniary gain) 
does not regulate industrial conditions in the interest 
of society, what can we do about it? Answer ex- 
plicitly. 

131 



132 PROJECTS OF ECONOMIC REFORM 

446. "As our industrial relations become more 
complex, social control becomes more necessary ." 

a. Are our industrial relations becoming more 
complex? Explain and illustrate. 

b. Give illustrations of social control over indus- 
try, or industrial conditions. 

c. May social control be due in some instances not 
to the growing complexity of industrial relations but 
to the growth of the social conscience — to the exten- 
sion of the spirit of brotherhood? Illustrate. 

447. "Medical assistance is so vital to the health 
and life of the people that it will sooner or later be 
socialized." What is meant by this statement ? How 
could medical assistance be socialized? What would 
be the advantage gained? Would there be any dis- 
advantage? Would this be an "economic reform"? 

448. "Canal dues and highway tolls have been 
abolished, but railway freights (on government 
owned roads) never: why the one and not the other?" 
— Pieeson, Principles of Economics. Answer. 

449. Should the state furnish university instruc- 
tion without expense to the student? If the state 
gives instruction without expense, why should it not 
also support the student during the years of study? 

450. Suppose that X. and Y. are twins, and of 
equal native capacity. Suppose that their parents 



PROJECTS OF ECONOMIC REFORM 133 

die when they are young, and that X. is then brought 
up and educated by a rich uncle, while Y. is brought 
up but not given much education by a poor aunt. 
X. makes an income of $10,000 per year; Y. makes 
one of $500. Is this right? — P. 

451. "The practices of scientific advertising and 
of suggestive selling have very little proved utility 
and are nearly as likely to be applied to force the 
wrong articles on the wrong purchasers as to dis- 
tribute wealth along the lines of its maximum utility 
for consumption." — Hobson, Work and Wealthy p. 
218. Evaluate this statement. Accepting it as true, 
what should be our attitude toward the practices 
mentioned ? 

452. "If there are trades incapable of bearing the 
true costs of maintenance of the labor they employ 
(in wages and insurance), it would still be right to 
place on them the obligaiton to do so, for their de- 
struction will be a gain, not a loss, to a society that 
understands its human interests." — Hobson, Ibid. y 
p, 230. 

a. Suggest the various kinds of insurance that 
might be included here. 

b. Give argument in support of this contention. 

c. Argue in opposition to this contention. Show 
that industry as a whole might be in such a condi- 
tion that these costs could not be borne. Should a 



134 PROJECTS OF ECONOMIC REFORM 

person be prohibited from working, if he cannot earn 
the total costs of his maintenance? 

453. "Equality in income would result in a great 
waste in the social utility derived from consumption." 
— Hobson. Defend this statement. 

454. In the preface to Munera Pulveris, Ruskin 
criticises the teachers of economics, and by inference 
the industrial order, because those things which are 
"illth" may be rated above those things which are 
"wealth." 

a. Give a few illustrations to show that we often 
make the mistake to which Ruskin objects. 

b. Accepting this to be a regrettable condition, 
what can we do about it? 

c. As time goes on, do you believe that market 
estimates will become more, or less, accurate in esti- 
mates of "wealth"? Explain. 

455. "No longer do men see it wise to work four- 
teen hours per day. . . . The fact that there are 
no men to regret these shorter hours with their lim- 
itation of product amounts to a direct approval of 
the choice of leisure as against product. What de- 
termines that the final wise limit of restriction upon 
labor and product has already been reached?" — 
Davenport, The Annalist, Nov. 8, 1915. 

a. Do you believe that the average working day 
should be shortened still more? 






PROJECTS OF ECONOMIC REFORM 135 

b. Formulate a general statement as to when it is 
advisable to substitute leisure for product. 

c. In this same article Davenport makes a similar 
point in regard to the saving of capital. Formulate 
a proposition and a question in line with this posi- 
tion. 

4*56. "How far is it true that the pleasure of the 
wearer of pearls can be regarded as offsetting the 
pains and dangers of the pearl diver? The wearing 
of hand-made lace as offsetting the making of it? 
The artificial flowers, the labor of the flower girl?'* 
— Davenport, Ibid, 

a. State definitely the point that Davenport is 
making here. 

b. If the pleasure to the user does not offset the 
pain to the producer, should the article be produced? 
Discuss fully, stating some ground, at least, for not 
taking the negative view? 

c. State the difference between the point in this 
quotation and that in the preceding one. 

457. "No person should be allowed to give his 
heirs more than $1,000,000." 

a. Argue that large fortunes are socially unde- 
sirable. 

b. What may be the danger in such a policy of 
inheritance taxation as is suggested here? 

c. "If the large fortunes are undesirable, condi- 



136 PROJECTS OF ECONOMIC REF(ODRM 

tions should be adjusted so that they canr in not be ac- 
cumulated." Do you agree? 

458. "All 'unearned* incomes should be taxe gd into 
the treasury of the state." What is meant by{ r un- 
earned income? Is there an element of this kind T , in 
the landlord's income? In the return to a stock *r 
speculator? In a lawyer's income? In a professor's 
salary? In a laborer's wages? 

459. "It is inevitable that certain persons should 
ride and that others should walk, but we should make 
the walking as good as possible." 

a. Is inequality of income inevitable? Explain, 
o. Name several social and economic improve- 
ments that are suggested by the second clause. 



DIRECTIONS TO THE STUDENT. 

I. Attacking the Problems. 

1. Read the assigned problems carefully. 

2. Study the text or other assigned reading, keep- 
ing the problems in mind. 

3. Make sure that you understand the terms used 
in the problems. 

4. Determine the particular point at issue. 

5. Bring to bear upon the problem all the knowl- 
edge you possess that relates to it, whether gained 
from the text, lectures, class-room discussion, or per- 
sonal experience. Consult your notes. 

6. State your answer definitely and adequately. 
Yes and no answers are never permissible; explain, 
discuss, but do not say more than is necessary; be 
succinct. Where possible, state the economic prin- 
ciple involved and give illustrations, preferably orig- 
inal ones. 

II. Preparing and Correcting the Written Exer* 
cises. 

The following directions, which appeared in the 
original local edition of this book, are included here 

137 



138 DIRECTIONS TO THE STUDENT 

for the convenience of such teachers as may care to 
use them. 

Students will prepare the solutions to the prob- 
lems, which are assigned to be written, upon "eco- 
nomics paper."* The student's seat number and 
his name shall be placed on the first and second lines 
in the center of the first page, the instructor's name 
and the number of the recitation section on the third 
and fourth lines at the left of the page, and the 
exercise number and the assignment on the third and 
fourth lines at the right of the page. For example: 

156 
A. B. Smith 

Mr. Ex.7 

Sec. 5. 70, 71, 73, 75-77 

The following scheme of marking will be used: 
\/ signifying excellent ; no mark, good ; wave line, 
something wrong ; p, missed the point ; i, incomplete ; 
v, vague; a, inadequate; q, see the question; x, 
wrong. A check (V) placed at the top of the first 
page will indicate that the paper as a whole is excel- 
lent or very good; a cross (X) will indicate that it 
is below grade. The papers will be marked and re- 
turned to the student to be corrected, in red ink, 
and returned to the instructor. Papers which do 
not need corrections shall also be returned to the 
instructor for filing. The student will label all of 
the returned papers corrected. 

* This paper consists of two sheets about 9y 2 inches by 12 
inches stapled together and folded into four pages. 



